Comments Made by Draghi Fuel Speculation that European Central Bank Will Cut Rate

Mario Draghi, the President of the European Central Bank has stoked expectations that the officials will be delivering an interest rate cut though the impact of the same is sort of doubted. On 4th April, Draghi stated that he is ready to act if the economic outlook of Europe worsens. Incidentally, April is a month which has seen the inflation plunging and economic confidence slumping. Many of the economists now predict that the European Central Bank will cut down the benchmark rate by a quarter point on today to a record low figure that of 0.5%.

The rates decided by the European Central Bank are still hampered by the debt crisis of the Euro region. At this point of time, the risk is that such a move of European Central Bank (That of rate cut) will not be able to revive the economy and take the Central Bank actually closer to exhausting the current armory of the same. Draghi himself has voiced his doubts on the utility of another interest rate cut. Apart from that, the board member of the European Central Bank, Joerg Asmussen, on last week, stated that there are certain limitations when it comes to the capabilities of the European Central Bank.

According to the Senior Economist of ING Belgium SA, Carsten Brzeski, the data released since the rate setting for month of April has provided good enough evidence that further monetary action is required to be taken in the Euro zone. Brzeski added that as long as the transmission mechanism is not functional, a rate cut can simply go up in smoke.

The European Central Bank board members will be taking the final decision on tomorrow in a meeting in Bratislava as the Government Council is holding its meeting for the month. Incidentally, after the same concludes, Draghi will be addressing the journalists in a press conference to talk about the decision.

Many economists feel that as the Euro region has a struggling economy and there are limits when it comes to the potency of the conventional means to stimulate the same, the European Central Bank should be trying out other options such as corporate bond purchases, long term loans and forward guidance on the interest rate cuts. Incidentally, earlier, the policy makers have found arguments against most of these possible measurements.

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