European Central Bank Rate Cut

European Central Bank policy makers introduced the idea of an interest-rate cut as a stimulus to act again to boost inflation.

Lowering borrowing costs would be most likely the initial step rather than resuming asset purchases.

This call-to-action was required by the descent of market inflation that was heading, as analysts affirm, to a record low.

Additional stimulus will be needed “in the absence of any improvement”, said the ECB President Mario Draghi and he even cited the rate reduction as an option.

Investors subsequently brought forward their expectations to September after Bloomberg’s report. Commerzbank AG now predicts such a policy step in July, while JPMorgan Chase & Co. said it now expects a rate cut in September.

In the meanwhile the U.S. President Donald J. Trump tweeted that ECB action that weakens the euro is unfair.

Other news directly from Mario Draghi was the possibility to resume the quantitative easing. While those rules were put in place to avoid crushing markets and crossing the line between monetary and fiscal policy, he said they are “specific to the contingencies we face.”

“That sentiment is being felt at major central banks around the world, which are moving back into battle mode. The U.S. Federal Reserve, Bank of England and Bank of Japan all hold policy meetings this week, which should give further insight into their concerns. Investors are betting on U.S. interest rate cuts later this year, while central banks in Australia, Russia, India and Chile have already loosened policy.” as Blooberg experts declared.

 

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June 19, 2019
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