ECB: Small rate cut a welcome sign of confidence
The renewed rate cut by the ECB is a welcome contribution to stabilizing the financial market situation. We do not share the criticism that the cut should have been larger. A larger reduction would have had little more impact on the economy and would have undercut expectations of any further rate cuts. Money market interest rate levels are no longer a curbing factor. It is important that adequate liquidity is on offer, also for longer maturities, which is the case. Moreover, the interest rate decision is appropriate in the current situation in which there are increasing glimmers of hope in the EMU economic data.
Today’s reduction in key interest rates of “only” 25 basis points instead of 50 was in line with our forecast, but still came as a surprise in terms of consensus expectations. We welcome the ECB's decision as, on the one hand, it keeps alive expectations of further rate reductions. On the other hand, we believe that it can be construed as a sign of confidence in the EMU economy's ability to stabilize. In our opinion, the chances of the economy bottoming out are not all that bad. Unlike many other forecasts and evidently also the ECB's own assessment, which does not expect a gradual economic recovery until 2010, we see no reason to entirely write off this year just yet. Rather, an appreciable pickup in the economy is likely to get under way from the middle of the year (our GDP forecast for the euro area 2009 is –2.3%).
Claudia Broyer
Tel.: 49 / 69 / 2 63 – 1 97 90
e-mail: claudia.broyer@allianz.com
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