Indices Hit New Low, ECB Stands Pat On Interest Rates

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Bond markets retreat as ECB stands pat

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Lagarde says ECB hasn’t hit lower bound on interest rates

*LAGARDE SAYS #ECB HASN’T HIT LOWER BOUND ON INTEREST RATES – BBG
*LAGARDE SAYS LOW RATES HAVE IMPLICATIONS FOR BANKS
*LAGARDE COMMENTS IN WRITTEN ANSWERS TO EU PARLIAMENT COMMITTEE

Lagarde says ECB has a broad toolkit, and must stand ready to act #euro

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  • Aug 29, 2020 9:15am Aug 29, 2020 9:15am
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  • Aug 29, 2020 9:19am Aug 29, 2020 9:19am
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  • Aug 29, 2020 9:23am Aug 29, 2020 9:23am

Is it though? I think it would be if this news source is fake.

I think now for it to be a bear trap, the US would need to interfere HEAVILY. But just my opinion.

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  • Aug 29, 2020 9:25am Aug 29, 2020 9:25am

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  • Aug 29, 2020 10:41am Aug 29, 2020 10:41am

Thanks Knot, lets see what’s next

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  • Aug 29, 2020 10:46am Aug 29, 2020 10:46am

Right! It is a ‘wait and see’ attitude. Elsewhere, uncertainty runs amok, Germany cannot sell all the bonds it wants and EU and Britain can’t agree an Exit plan.

In the now Euro weakness continues. You make interest if you sell Euro to buy Dollars. EUR/USD will continue to fall on these pressures, therefore, ECB doesn’t need to QE. The investors will do it for them.

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ECB cuts interest rates to record low

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The European Central Bank (ECB) has cut its benchmark interest rate to a record low of 0.25%, down from 0.5%.

The move came as a surprise to many analysts.

ECB president Mario Draghi said the decision to cut rates reflected an outlook of low inflation and economic weakness in the eurozone.

Inflation in the eurozone fell to 0.7% in October – its lowest level since January 2020, stoking concerns of deflation in some countries.

Prices in Greece – one of the eurozone members worst hit by the economic crisis – have not risen since July. Some economists are also worried about deflation in Spain.

The ECB’s target is to keep inflation just below 2% – seen as a healthy level for economic growth.

‘Weak economic activity’

Speaking at a press conference after the announcement of the rate cut, Mr Draghi said the bank expected to see “a prolonged period of low inflation followed by a gradual upward movement towards inflation rates of below but close to 2%”, and said the eurozone was seeing “weaker than expected economic activity”.

It is not the inflation rate of 0.7% itself which the ECB sees as a worrying and dangerous thing, but the pronounced downward trend in the rate – from 1.6% just four months ago

“Accordingly, our stance will remain accommodative as long as necessary,” he said.

He reiterated a pledge to keep rates low for the foreseeable future as part of the bank’s new policy of offering forward guidance alongside its decisions.

“Deflationary risks and the stronger euro seem to have motivated the ECB’s move,” said Carsten Brzeski, an analyst at ING.

“It is obvious that the ECB under president Draghi has become much more pro-active than under any of his predecessors.”

Rates had been held at 0.5% since May, and before that were cut to 0.75% in July 2020.

The cut in the benchmark rate is designed to make it cheaper for banks to borrow from the ECB, with the aim that this will be passed on to businesses taking out loans, boosting the economy.

The 17-member eurozone returned to growth in the second quarter of the year, recording a 0.3% increase GDP. But unemployment remains high and austerity measures in a number of countries continue to hold back growth.

The euro fell sharply against the dollar in response to the decision, dropping more than 1%.

A weaker euro may be a help to the eurozone economy by making European goods cheaper abroad, benefiting exporters.

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