Investing.com - Financial Markets Worldwide
Get 40% Off
Get 40% Off
🚨 Volatile Markets? Find Hidden Gems for Serious OutperformanceFind Stocks Now

An ECB Rate Cut May Be Justified, But Not Beneficial

ByBenzinga
AuthorBenzinga
Published 03/07/2013, 12:38 AM
Updated 05/14/2017, 06:45 AM

Questions about the upcoming European Central Bank meeting and Italy's political turmoil kept the euro trading at $1.3051 on Wednesday morning.

Thursday's ECB meeting will be closely watched for clues about the bank's intent to cut interest rates. Although most aren't expecting a rate cut at this meeting, many economists claim the economic data from the region would support the decision to make cuts in the future.

At the moment, eurozone inflation is below the 2% target at 1.8% and expected to continue falling. However, many believe that slashing interest rates, although justified, wouldn't have a positive effect on every eurozone country. Instead, cutting interest rates now may only benefit countries like Germany, where consumer borrowing and new business financing would increase.

Southern European countries that need the most help, like Spain and Italy, would likely miss out on the benefits of an interest rate cut since their deep recession would keep banks from lowering rates to benefit the private sector.

According to the The Wall Street Journal, this disparity was highlighted by an ECB report on Tuesday which showed that German small businesses paid much lower interest rates for loans than their Southern European counterparts in Spain, Italy and Portugal.

Also plaguing the region is Italy's ongoing political uncertainty following last week's gridlocked elections. The three candidates were unable to come to an agreement to form a coalition, so the decision may rest on Italian President Giorgio Napolitano's shoulders. Unless Pier Luigi Bersani is able to form a coalition, Napolitano has said he may appoint a non-politician to lead a new technocrat government.

by Laura Brodbeck

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads .

Latest comments

Install Our App
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.