ECB Rate Cut Might Make No Difference

Last month’s dive in euro zone inflation has put a European Central Bank rate cut back on the agenda, but with bank-to-bank lending rates already near zero, markets are struggling to see what difference it might make.

In recent months, further ECB cuts had all but been written off. Troubled economies were showing signs of stabilization, the bank’s main borrowing rate was at a record low and its deposit rate, which became more important when it flooded markets with ultra-cheap cash in the crisis, was at zero.

But after a couple of low-ball inflation numbers, the mood is switching towards a possible 25 basis point refi cut to 0.25 percent soon – albeit not this week according to a Reuters poll.

The question is whether a cut would make any difference.

The short answer may be no. The ECB has long complained its low rates are not getting through to euro zone trouble spots where worries about debt levels and lending to and by banks remain high.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza