ECB cuts eurozone interest rates to new record low of 0.50%

Mallotum_X

http://www.bbc.co.uk/news/business-22369765

The European Central Bank (ECB) has cut interest rates to a new record low amid ongoing worries about the eurozone's economic health.

The widely-expected cut to 0.50% from 0.75% is the first in 10 months.

Worries about eurozone economies were underlined on Thursday with data showing manufacturing activity across the 17-nation bloc shrank in April.

In Germany, the eurozone's biggest economy, manufacturing contracted for the second month running.

Austerity debate
Official data released on Tuesday showed record high unemployment in the eurozone, and inflation at a three-year low.

Well ahead of the ECB's announcement, many economists were forecasting that lower interest rates were likely, but said the fresh data released this week made the case for a cut even stronger.

ECB president Mario Draghi is due to hold a news conference later when he will expand on the reasons behind the rate decision.

There are concerns that the ECB's low interest rates are not feeding through to those economies most in need of a boost, with potential lenders still worried about the economic health of countries such as Greece and Spain.

In recent months there have been growing calls for European countries to move away from austerity measures, which critics say are stifling growth. Instead there are calls for a greater focus on stimulus measures.

Both French President Francois Hollande and newly-elected Italian Prime Minister Enrico Letta have urged a reconsideration of austerity policies.

Shrinking
Thursday's Purchasing Managers' Index (PMI) highlighted the problems facing many eurozone countries. The index for Germany's manufacturing sector, which accounts for around a fifth of the economy, fell to 48.1 in April from 49 in March. A reading below 50 indicates contraction.

And in France, Italy and Spain, the eurozone's next three biggest economies, the PMI data also revealed contractions in manufacturing activity.

For the 17-nation eurozone bloc as a whole, the PMI index fell to 46.7 last month, from March's 46.8.

"There is nothing here to suggest that manufacturing will turn the corner and stabilise any time soon, putting greater onus on policymakers to act quickly to reinvigorate growth," said Chris Williamson, chief economist at Markit, which collates the PMI figures.

Graham_Devon

Merkel will be fuming!

marathonic

Most of the Irish mortgage rates are well detached from the ECB rate at the moment. In fact, AIB and a few other banks announced yet another rise earlier this week to 'get their dig in' before this cut (it would have looked worse announcing an increase after the cut).

However, I also know of plenty people on tracker mortgages. The best ever tracker rates in the Republic of Ireland were with National Irish Bank, now Danske Bank, and were at ECB+0.5%.

dryhat

ECB rates were lowered to allow banks another little avenue for scamming.

0.25% here or there doesn't seem a lot to us, but it adds up to a lot when you're running a global, trillion dolllar crime syndicate.

While rates are this low, there will never be any "recovery"

Generali

Interestingly, this comes on the heels of the announcement that German CPI fell by about 0.5% in March.

Deflation Eurozone edition anyone?

purch

It'll give Helmut Schleisinger a coronary, but the ECB will start a negative interest rate"experiment" before we do

Thrugelmir

purch wrote: »

but the ECB will start a negative interest rate"experiment" before we do

The UK has been for some years already.

MacMickster

Generali wrote: »

Interestingly, this comes on the heels of the announcement that German CPI fell by about 0.5% in March.

Deflation Eurozone edition anyone?

A conundrum for the Germans.

Higher interest rates would be ruinous for many of the southern European countries at the moment, leading inexorably to the break-up of their precious Euro experiment.

On the other hand, lower (even negative) interest rates leading to deflation in Germany alone would both damage their export led economy and cause the German public themselves to stop spending. The German public had, until relatively recently, a tendency to save rather than spend their money. A return of this habit would lead to falling GDP and rising unemployment.

Thrugelmir

MacMickster wrote: »

The German public had, until relatively recently, a tendency to save rather than spend their money.

Like the Chinese, for the Germans its cultural not a habit. Only the Brits believe that being neck high in debt is the way to live. "We" have a tendancy to assume our own self importance far too often (as portrayed through the media). Yet our debt levels are the worst. Something that is going to hit hard at some point in the future.

OffGridLiving

dryhat wrote: »

While rates are this low, there will never be any "recovery"

It's good to see some lateral thinking, but I'm struggling to understand how raising interest rates will help?

grizzly1911

Thrugelmir wrote: »

Like the Chinese, for the Germans its cultural not a habit. Only the Brits believe that being neck high in debt is the way to live. "We" have a tendancy to assume our own self importance far too often (as portrayed through the media). Yet our debt levels are the worst. Something that is going to hit hard at some point in the future.

Not all Brits subscribe to living on debt.

Something that successive governments have promoted to keep the plates spinning and detract from the real problems.

There are still many that live within their means, practice prudence and save.Unfortunately it is those that are now being shafted to keep those that do live on debt a float.

Interesting seeing the growth in high street buy now pay later shops. Not to mention the number of costly TV adverts they spawn, together with the PDL companies