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Azad Zangana, European Economist, Schroders

ECB interest rate cut 'marginally beneficial' for the eurozone

Thu, 05/07/2012 - 15:22

Azad Zangana (pictured), European Economist at Schroders, on the ECB’s decision to cut interest rates to a record low…

The European Central Bank has cut its main policy rate for the first time since December 2011, taking the refinancing rate down from 1.00% to a record low of 0.75%. In addition, the ECB has cut its marginal lending rate to 1.5%, and its deposit rate to zero. While the cut in the main refinancing rate was expected, the cut to the deposit rate comes as a surprise as the bank has in the past emphasised the need to have a positive deposit rate. The result has been some depreciation in the EUR against the USD and GBP.
 
The cut in the ECB’s interest rates will be marginally beneficial for the Eurozone economy but by no means removes the risk of recession in the near term nor resolves the sovereign debt crisis. No announcement has been made yet on whether the ECB will hold more Long Term Refinancing Operations (LTROs) auctions, though we expect more LTROs to be unveiled at the press conference later this afternoon.


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