ECB Rate Cut Possible, But Not Definite

  on
ECB President Mario Draghi was in policy hell Thursday after disappointing market-watchers at what was the most anticipated and important press conference of his career as a monetary policy leader.
ECB President Mario Draghi was in policy hell Thursday after disappointing market-watchers at what was the most anticipated and important press conference of his career as a monetary policy leader.

The euro ticked up on Thursday morning, reaching $1.3031 despite a disappointing purchasing managers' survey out on Tuesday.

The purchasing managers' index remained unchanged from last month's figure, but the steep decline in new orders was worrying for May's results. Most investors were more concerned with Germany's PMI, which indicated that business activity dropped sharply in April.

Following the PMI results, data from a survey of German business sentiment confirmed fears that the region's largest economy had a grim outlook. The survey showed that the nation's business climate index fell from 106.7 in March to 104.4 in April.

The news reignited talk of the possibility that European Central Bank could cut the already record low interest rates at their next monthly meeting in May. However, Reuters reported that some analysts think that a rate cut is possible, but not definite.

Instead, some are expecting the bank to explore other options to help the already record low rate reach countries that need it like Spain and Italy.

On Wednesday, ECB Vice President Vitor Constancio made statements indicating that the bank would act if economic conditions continued to decline within the region; but some think the bank will act through loan programs rather than rate cuts.

Remarks from Germany's Deputy Finance Minister Steffen Kampeter provided some lift to the euro as well, after he admitted that the rules dictating how eurozone economies scale back their debt must respond to a changing economic outlook. The comments are the first sign that German officials may get on board with recent calls for less austerity in the region's recovery.

According to Businessweek, German lawmakers are expected to loosen deadlines for loan repayment, but not to do much else.

The nation, which joined the bloc on expectations that all of its members would be self sufficient, has been resistant to pooling the region's strength and continuing to bail out weaker economies.

(c) 2013 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

 

Copyright Benzinga. All rights reserved.

Join the Discussion