Arab Today, arab today ecb to take breather after recent rate cut
Last Updated : GMT 06:51:35
Arab Today, arab today
Arab Today, arab today

ECB to take breather after recent rate cut

Arab Today, arab today

Arab Today, arab today ECB to take breather after recent rate cut

Frankfurt - AFP

The European Central Bank will not announce further policy moves at its regular monthly meeting on Thursday as it examines the effects of its recent cut in interest rates on the eurozone\'s recession-ridden economy, analysts said. \"Those expecting some significant announcements by the ECB following their meeting are likely to be disappointed,\" said Marie Diron, economist at Ernst & Young Eurozone Forecast. At last month\'s meeting, the ECB\'s governing council cut the bank\'s key rates to an all-time low, shaving a quarter of a percentage point off the \"refi\" rate on its main refinancing operations to 0.50 percent. It also pared back its marginal lending rate by half a point to 1.00 percent, but it left its deposit rate unchanged at zero. ECB watchers have questioned the effectiveness of rate cuts, arguing that the more pressing issue for the euro area\'s economy is the low level of lending to Europe\'s small and medium-sized enterprises (SMEs). Last month, bank President Mario Draghi revealed that the ECB was in \"consultations\" on this issue with other European institutions such as the European Investment Bank (EIB) and the EU Commission. But he acknowledged that the ECB\'s thinking on the issue was \"very much at an early stage.\" Diron said \"it looks like the ECB is backing away from measures aimed at fostering loans to SMEs and that they want to focus on the restructuring of banks\' balance sheets.\" But the two issues were not mutually exclusive, the expert pointed out. And \"boosting loans to SMEs would have the enormous advantage of bringing some benefits potentially quite quickly,\" she said. \"With unemployment at record highs and rising, measures that can give a fillip to growth in the short term are very attractive. Instead, whilst a clean-up of banks\' balance sheets is necessary to ensure sustained growth in the medium term, it would probably be negative for growth in the short term,\" Diron argued. Berenberg Bank economist Christian Schulz similarly believed that the ECB \"has apparently not found anything that would make sense and/or be worth the political backlash such measures could trigger in Germany.\" German Finance Minister Wolfgang Schaeuble is opposed to a proposed scheme for the ECB to buy up asset-backed securities of companies. \"The ECB cannot do very much at the moment,\" Schulz said. \"Instead, the ECB might pin its hopes on the end of June EU summit to come up with new initiatives to support the periphery.\" The ECB is also scheduled to publish its latest updated staff economic projections which, given the recent flow of economic data from around the euro area, could see some downward revisions, analysts said. UniCredit economist Marco Valli said he expected the 2013 gross domestic product forecast to be revised down to minus 0.8 percent from minus 0.5 percent previously. In the light of that, the governing council members \"who voted for a half-point cut at the May meeting will probably call for a further relaxation of conventional policy,\" Valli said. He, too, believed there would be \"no bold announcement on unconventional policy.\" ING DiBa economist Carsten Brzeski said the macroeconomic environment \"still looks too fragile and uncertain for the ECB to take a back seat.\" Throughout the crisis, ECB chief Mario Draghi had \"taken bold steps, pushing the ECB into policy territory where no eurozone central bank had been before. \"Even if expectations of more bold moves are still high, the ECB looks set to take a pause this week. For the time being,\" Brzeski predicted.

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