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ECB cuts rates, economists hope for more

Thursday, May 02, 2013 - 02:39

May 02 - The European Central Bank cuts interest rates for the first time in ten months to 0.5 per cent at a policy meeting in Bratislava, as widely expected, in the hope of reviving the flagging euro zone economy. Joanna Partridge reports that some economists believe the cut won't make a big difference.

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A new five euro bill, unveiled by European Central Bank President Mario Draghi. Made public after the ECB cut its main interest rate by a quarter of a percent to a record low of 0.5% at its monthly meeting in Bratislava, Slovakia. But so far the ECB has resisted growing calls to print money, like others central banks such as the Bank of Japan and the Federal Reserve. The first rate cut in 10 months is intended to revive the euro zone's flagging economy. SOUNDBITE: Mario Draghi, European Central Bank President, saying (English): "The risks surrounding the economic outlook for the euro area continue to be on the downside. They include the possibility of even weaker than expected domestic and global demand." Unemployment in the euro area is at a record high, and rising. And inflation has dropped well below its target level. The ECB acknowledge the tough economic climate and said it would provide banks with as much liquidity as needed until July 2014. As well as looking at ways to boost lending to smaller companies. Draghi also showed he's firmly on the side of austerity in the austerity vs growth debate. SOUNDBITE: Mario Draghi, European Central Bank President, saying (English): "Euro area countries should not unravel their efforts to reduce government budget deficits and continue where needed to take legislative action or otherwise promptly implement structural reforms." Investors had expected a rate cut after Draghi said last month the ECB stood ready to act. Shares and the euro initially rose on the decision, before dropping back during Draghi's press conference. Few economists expect the rate cut to make a real difference in tackling the euro zone's problems, says Jan Randolph from IHS Global Insight. SOUNDBITE: Jan Randolph, Director of Sovereign Risk Analysis, IHS Global Insight, saying (English): "There are measures in the toolbox a central bank can do, having said that, the fundamental structural problems in Spain, Italy and elsewhere, is really for governments to do the heavy lifting, the ECB cannot introduce eurobonds, the ECB cannot instructure Madrid, Rome to engage in labour reforms, this is for the government to take responsibility. So there is more that central banks can do, even the ECB. But there are ultimate limits." Draghi echoed that view, that the ECB can only do so much to put the euro zone on the path to recovery. But the rate cut leaves some economists questioning if now isn't the time for more drastic, innovative action, then when?

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ECB cuts rates, economists hope for more

Thursday, May 02, 2013 - 02:39