Federal Reserve Chairman Jerome Powell announced an emergency rate cut Tuesday to deal with the ongoing outbreak of the
“The ECB will almost certainly try to intervene,” Florian Hense, European economist at Berenberg bank said Wednesday.
Data released Tuesday showed euro zone inflation hitting a three-month low in February, according to the European statistics office. This is a crucial data point for the ECB, whose primary mandate is to react to price changes.
ECB cut and cheaper loans?
Some market watchers are expecting a rate cut of 10 basis points in the euro zone and changes to bank lending. However, ECB President Christine Lagarde could also announce additional measures.
“The ECB could introduce a special facility targeting SMEs (small and medium enterprises) hit by the crisis with looser terms and conditions than other open-market operations,” Frederik Ducrozet, senior economist at Pictet Wealth Management, said in an email Tuesday.
The ECB’s deposit rate — which is the interest that the central bank provides to financial institutions that deposit cash at the ECB — stands at -0.5%. The negative rate is meant to spur banks to loan money rather than park it at the central bank. The ECB is also providing other forms of stimulus to the euro zone via an open-ended bond-purchase program and cheaper funding for European banks.
Chief economist at ING Germany
“We do not see an ECB rate cut as the likely policy response, although it can never be ruled out as the easiest compromise,” analysts at Bank of America said in a note Tuesday.
Lagarde said in a statement Monday that “the
Lagarde also said that the central bank is “monitoring” the situation and that it stands ready “to take appropriate and targeted measures.”
Reuters, citing three sources familiar with the discussion, reported Wednesday that the bank is looking at a number of options and that there’s no immediate plan of action, given the necessary preparatory work.
Bank of England in emergency cut?
“We have, therefore, adjusted our view
The outgoing governor of the BOE, Mark Carney, said Tuesday that the
“However, there are also some reasons to believe that the BoE will wait a little longer and be a little less aggressive than their colleagues across the pond,” they said, highlighting that a new governor is due to take over before the next policy meeting and that the U.K.’s departure from the EU is still embroiled in some economic uncertainty.
Nonetheless, most analysts are pricing in a 25-basis point cut to rates at some point this month.
Central banks may be back in the spotlight, but some economists are doubtful that their decisions can make a significant impact — after a decade of easy monetary policy.
He added that “there is very little the ECB can do, besides calming financial markets. To be blunt, at the current juncture a vaccine would definitely help more than another rate cut.”