ECB rate cut step towards growth in Europe

The decision by the European Central Bank to reduce its main refinancing rate from 0.75 percent to 0.5 percent was hailed as a positive step by experts in Britain.Nancy Curtin, chief investment officer of Close Brothers Asset Management, told Xinhua, "Growth is decelerating in the eurozone, not just in the periphery but the core as well. The ECB's move to cut rates is a positive step away from austerity, and a step towards growth."She added, "There have been about five quarters of GDP contraction, and in this quarter it looks as though contraction could accelerate from 0.Used loaders9 to 1.5 percent; and the PMI figures have been negative for seven quarters."This is the first ECB cut in rates since July 2012, and reflects the worsening situation since that time.At the beginning of this week, eurozone unemployment hit a new high at 12.1 percent with unemployment in Spain -- one of the worst-affected countries -- at 26.7 percent.Curtin said that while trimming rates should bolster public confidence, by itself it may not be enough to stimulate increased economic activity.She said, "One of the key hurdles to growth in the eurozone is the restricted supply of credit to SMEs. We would welcome an ECB equivalent of the British Funding for Lending Scheme, which could be a shot in the arm for many weakening European economies."Cutting 25 basis points off the re-fi rate would reduce the interest rates paid by banks on their liquidity, said Curtin, but as Mario Draghi said this was only part of the solution.Vintage bath fixturesCurtin said Draghi had indicated that the ECB might consider a negative interest rate on the funds deposited with them by banks, to further stimulate lending instead of sitting on it."The liquidity goes to the banks and the banks just repark it at the ECB and earn 50 basis points," she commented. 

Curtin said that given weakening economic data, she believed there was a need to see more bold moves towards a pro-growth policy from individual governments -- as well as the ECB -- before investors could begin to get excited about EU equities again.The ECB's decision to implement a rate cut had "looked inevitable" in the face of the latest disappointing data and survey evidence which indicated continuing economic weakness across the eurozone, according IHS Global Insight's Howard Archer. 
Archer said,carbon cloth "Any potential help to the eurozone economy in its current state is worthwhile, and a move is certainly justified by consumer price inflation."CPI across the eurozone is just 1.2 percent for April,Antique tubs having taken a clear and sharp 0.5 percent fall from the March figure, significantly below the ECB target of 2 percent, and giving ample headroom to allow the ECB to take action.Archer said the ECB's cut may have a downward impact on bond yields as well as some softening impact on the euro, which "would be generally helpful to growth prospects."However, Archer cautioned, "Having said that, any further impact on bond yields is likely to be modest as the ECB's cut has been increasingly anticipated and it may already be, at least partially, incorporated in current bond prices."Archer also pointed to a significant statement by ECB Mario Draghi during a press conference after the rate cut announcement, which indicated there could well be a further fall in the rate in the future."Draghi also stated that the ECB would monitor very closely all incoming data and stands ready to act.tire changer This suggests that an interest rate cut to 0.25 percent is far from inconceivable," said Archer.Such a cut was "a very real possibility," said Archer, if eurozone growth remained elusive and inflation remained below target.