- Carsten Brzeski, senior economist at ING Bank
During its Thursday policy meeting the European Central Bank is likely to cut its benchmark interest rate as latest inflation and unemployment data suggest the region economy is not on the path of recovery yet. Mario Draghi is expected to cut rates by 25 basis points to a new record low of 0.5%, measure considered as the catalyst for a less aggressive approach to reducing budget deficits. With more than 19.2 million people or 12.1% being out of work and consumer prices at 1.2%, level which is 0.8% lower than the ECB target, cutting rates alone may not lead to the desired effect, and additional cash injections may be needed. Moreover, earlier cuts have failed to stimulate small businesses and reach households in peripheral nations.
"Latest comments by a number of senior ECB officials indicate that an interest rate cut is very much on the cards for Thursday, and we think the bank is more likely than not to act. If the ECB does hold fire on interest rates next Thursday, it is very likely only delaying the inevitable," Howard Archer, chief U.K. and European economist at IHS Global Insight wrote after Tuesday's data release.
"As long as this mechanism is not working, a rate cut would simply go up in smoke and could soon look like a last act of desperation," Carsten Brzeski, senior economist at ING Bank in Brussels said.
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