Arab Today, arab today ecb cuts rates in surprise to counter deflationary dangers
Last Updated : GMT 14:38:23
Arab Today, arab today
Arab Today, arab today

ECB cuts rates in surprise to counter deflationary dangers

Arab Today, arab today

Arab Today, arab today ECB cuts rates in surprise to counter deflationary dangers

Frankfurt - AfP

The European Central Bank cut its key interest rates in an unexpected move Thursday amid concerns that slowing inflation in the euro area could turn into a vicious circle of falling prices. The ECB took financial markets by surprise by cutting its central "refi" or refinancing rate by a quarter of a percentage point to a new record low of 0.25 percent. The move comes after new data showed eurozone inflation slowing to a four-year low of 0.7 percent last month, raising the spectre of deflation. The International Monetary Fund welcomed the rate cut, saying it was justified to shore up growth in the fragile eurozone. "The decision is fully warranted by the weak inflation dynamics and substantial slack in the economy," said IMF spokesman Gerry Rice. "We strongly welcome the decision by the ECB today which we believe can help support the nascent recovery in the euro area," Rice said. "The recovery is fragile and the outlook remains challenging" for the region, he said. Most ECB watchers had expected the bank to keep its gunpowder dry at its monthly policy meeting at least until next time, when it would have compiled new inflation and growth forecasts. But ECB chief Mario Draghi justified a move this month by saying that the 17 countries that share the euro "may experience a prolonged period of low inflation". Eurozone interest rates have never been so low, but the ECB still has further ammunition up its sleeve, Draghi said. "We have a whole range of instruments we can mobilise if necessary," Draghi told reporters. "In principle, we could even cut further." It could take its deposit rate -- currently at zero percent -- into negative territory for the first time. Or it could roll out more liquidity measures in the form of LTROs or long-term refinancing operations, the ECB chief suggested. Euro strength not a factor Draghi rejected suggestions that the euro's recent strength was a factor behind the rate cut. A strong euro weighs on eurozone exports, undercutting the region's still very fragile economic recovery. The euro's strength "played no role in today's decision. I don't think it was even mentioned," he said, though adding that the exchange was important for price stability. Economists admitted they were caught off-guard by the move, but suggested it was more symbolic and the economic impact would be limited. Marie Diron at EY Eurozone Forecast felt "this rate cut is good news for the eurozone." However, it "is not enough to remove the risk of deflation altogether" and further monetary policy action would be possible in the next few months, Diron suggested. Commerzbank chief economist Joerg Kraemer believed it was not actually the fear of deflation that had forced the ECB's hand, because the low rate of inflation could be attributed to increased price competitiveness in countries such as Ireland, Spain and Portugal. Kraemer suggested the ECB was trying to anchor investors' expectations for money market rates close to zero percent for a very long time. "This keeps the hunt for yield alive which creates demand for government bonds of peripheral countries and thus stabilises the currency union which lacks a broad-based reform breakthrough in the peripheral countries, especially in Italy," the expert argued. ECB under Draghi more pro-active Carsten Brzeski at ING DiBa felt that the ECB under Mario Draghi "has become much more pragmatic and pro-active than under any of Draghi's predecessors. "Contrary to past experiences, the ECB now seems to follow the motto of 'even if it does not help, it does not hurt either'." Nevertheless, Brzeski was sceptical that the ECB could actually do much more. "Even if Draghi reiterated that the zero (boundary) for interest rates had not been reached, we are doubtful that the ECB can still offer many of these big-bang days in the future," he said. Berenberg Bank economist Holger Schmieding was more enthusiastic. "Once again, the Draghi ECB has shown that it can act decisively," he said. "We do not expect the ECB rate cut to achieve a lot, rates were very low anyway. We do not expect the cut to do any damage either. But the very fact that Draghi today demonstrated again a capacity to act fast and energetically strengthens our core conviction for Europe," he said.   RBS economist Richard Barwell similarly believed the move "will force the market to revisit its assessment of the ECB reaction function." But Capital Economics economist Jonathan Loynes said "a small cut in interest rates is not going to transform the economy. "And while the ECB's arsenal is not yet completely spent, the central bank cannot address the fundamental problems of high debt, structural rigidities and a lack of competitiveness in the periphery which will continue to weigh on the currency union's economy," he warned.

Name *

E-mail *

Comment Title*

Comment *

: Characters Left

Mandatory *

Terms of use

Publishing Terms: Not to offend the author, or to persons or sanctities or attacking religions or divine self. And stay away from sectarian and racial incitement and insults.

I agree with the Terms of Use

Security Code*

Arab Today, arab today ecb cuts rates in surprise to counter deflationary dangers Arab Today, arab today ecb cuts rates in surprise to counter deflationary dangers

 



Arab Today, arab today
Arab Today, arab today Saudis await visitors but will they come?

GMT 11:54 2017 Thursday ,23 February

Saudis await visitors but will they come?
Arab Today, arab today Sarah Belamesh designs antiques of "ceramic"

GMT 19:45 2017 Monday ,20 February

Sarah Belamesh designs antiques of "ceramic"
Arab Today, arab today Blind sheikh buried in Egypt

GMT 06:32 2017 Thursday ,23 February

Blind sheikh buried in Egypt
Arab Today, arab today Media host Mona Iraqi stresses her show's success

GMT 15:32 2017 Wednesday ,22 February

Media host Mona Iraqi stresses her show's success
View News in Arabic - Business: مصارف
Arab Today, arab today
Arab Today, arab today
Arab Today, arab today To hold social dialogue over secondary school

GMT 07:43 2017 Wednesday ,22 February

To hold social dialogue over secondary school
Arab Today, arab today UK appoints 1st Scotland Yard chief in 188 years

GMT 05:14 2017 Thursday ,23 February

UK appoints 1st Scotland Yard chief in 188 years
Arab Today, arab today Ex-yoga missionary unleashes rage

GMT 12:16 2017 Thursday ,23 February

Ex-yoga missionary unleashes rage
Arab Today, arab today Pluto's unruly moons

GMT 06:31 2015 Thursday ,04 June

Pluto's unruly moons
Arab Today, arab today Tesla back into red but revenue grows

GMT 07:27 2017 Thursday ,23 February

Tesla back into red but revenue grows
Arab Today, arab today Nissan enhances sales in most markets

GMT 14:08 2017 Monday ,20 February

Nissan enhances sales in most markets
Arab Today, arab today Salma Rashid happy for 'A Whisper of Love'

GMT 05:19 2017 Tuesday ,21 February

Salma Rashid happy for 'A Whisper of Love'
Arab Today, arab today Milan laughs while Rome cries

GMT 10:28 2017 Wednesday ,22 February

Milan laughs while Rome cries

GMT 06:41 2017 Monday ,20 February

Janat pleased for issuing 'Good Morning'

GMT 12:35 2017 Tuesday ,21 February

63-Year-Old Woman Delivers Baby

GMT 14:29 2017 Monday ,20 February

Prepares to present her new collection

GMT 15:53 2017 Tuesday ,21 February

Small ponds have outsized impact

GMT 23:29 2017 Thursday ,16 February

Home built on sand castles-style costs $8m

GMT 07:51 2017 Wednesday ,22 February

Mom's immune system accepts babies

GMT 17:46 2017 Saturday ,18 February

Tourist guide reveals methods of tourist attractions

GMT 13:12 2015 Saturday ,09 May

Sheikh Sultan opens Sharjah Centre

GMT 19:10 2017 Friday ,17 February

Hats, scarves add beauty to women
Arab Today, arab today
Arab Today, arab today
 
 Arab Today Facebook,arab today facebook  Arab Today Twitter,arab today twitter Arab Today Rss,arab today rss  Arab Today Youtube,arab today youtube  Arab Today Youtube,arab today youtube
arabstoday arabstoday arabstoday arabstoday
arabstoday arabstoday arabstoday
arabstoday
بناية النخيل - رأس النبع _ خلف السفارة الفرنسية _بيروت - لبنان
arabstoday, Arabstoday, Arabstoday