Draghi Hints at Future Rate Cut

   on April 05 2013 8:56 AM
Draghi
ECB President Mario Draghi and German Chancellor Angela Merkel Reuters

The euro rebounded on Friday morning after the European Central Bank's policy meeting concluded without any major changes to the region's policies. The common currency traded at 1.2919 at 7:00 GMT on Friday as investors regained confidence in the region.

Bank President Mario Draghi's news conference following the meeting fueled speculation that the central bank will lower interest rates in the coming months if economic data doesn't improve. Recent manufacturing data and unemployment figures put a lot of pressure on the currency since most took the dismal numbers as proof that the region was still deep in recession.

Although the bank chose to maintain the current 0.75 percent interest rate, the Wall Street Journall reported that Draghi's comments opened the door to a rate cut as early as May.

However, the bloc's interest rates alone may not be the problem. After cutting interest rates three times since 2011, it has become apparent that the bank's policy decisions are not benefiting every nation in the region; namely those which need ECB support the most. This disconnect is prominent between healthier, northern countries and their struggling southern counterparts.

A small business loan in Spain or Italy comes with a much higher interest rate than one in Germany. Draghi addressed this concern in his conference by saying the bank was looking into solutions, but that the responsibility for this type of reform falls on the individual government's shoulders rather than the central bank alone.

Draghi was also pressed about the recent Cypriot bailout, in which Bank of Cyprus account holders were taxed more than 40 percent of their account totals in order to raise funds.

Draghi defended the bank's plan by saying it was the only way to solve the problem without turning to tax payers, and reiterated that the Cypriot bailout was a unique situation and the bank was not considering using these tactics as a blueprint for future banking restructures.

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