The strength of the euro, the state of the global monetary system and controversy over a so-called “currency war” will dominate the economic stage at eurozone and G20 ministerial meetings this week.
FRANKFURT, Germany — The European Central Bank is unlikely to offer any further help for Europe’s sagging economy Thursday after already lowering interest rates to record lows and calming the region’s debt crisis with its plan to buy the bonds of heavily indebted governments.
After a year that has seen €1 trillion ($1.3 trillion) in emergency loans to banks, a rate cut, and President Mario Draghi’s vow to “do whatever it takes” to rescue the euro, some analysts say the ECB may consider itself finished with efforts to rescue the economy of the 17 European Union countries that use the euro.
Analysts say the bank will hold off cutting its key refinancing rate any further from its current 0.75 percent when the bank’s 22-member governing council gathers at its headquarters in Frankfurt. The council sets monetary policy for the eurozone and its 333 million people.
It is also unlikely that the ECB will offer any major new emergency measures, after Draghi made the risky but crucial step in September of saying the bank could buy unlimited amounts of government bonds and lower borrowing costs for those governments, such as Spain and Italy, that are struggling to finance their debts.
Eurozone financial markets have calmed since ECB made its offer, though it has yet to buy a single bond under it. The ECB would only do so if a country asks for the help and agrees to take steps to reduce its deficit. Even so, the bond offer and calmer markets have so far removed the threat of a government might be forced to default on its debts.
But it will take more than that to get the wider economy moving again.
The eurozone shrank 0.1 percent in the third quarter, and is likely to shrink again in the last three months of the year. Meanwhile, the ECB is expected to cut its forecast for next year from 0.5 percent to near zero, in line with the forecast for 0.1 percent growth from the EU’s executive commission.
Cutting rates can stimulate lagging growth by lowering borrowing costs, thereby making it easier for businesses to expand and consumers to spend. But bank officials have questioned how much good further cuts would do. Even with record low rates, businesses still aren’t borrowing much due to the weak outlook. Eurozone retail sales slumped 1.2 percent in October, far more than expected.
Low rates and an infusion of around €1 trillion in low-cost loans to banks last December and February are only now showing faint signs of trickling through to the wider economy.
The slack economy, along with lower oil prices, has helped lower inflation to 2.2 percent, closer to the bank’s goal of just under 2 percent. Yet even that won’t be enough to trigger a cut with rates this low.
Recent statements by Draghi and other council members indicate “that the ECB perceives its job, both on conventional and unconventional policy, as just about done,” said Marco Valli, chief eurozone economist at Unicredit. He sees no rate cut “for the foreseeable future.”
Christian Schulz, senior economist at Berenberg Bank, says that as long as the economy shows even a mild recovery by next spring, “the ECB will not cut interest rates further” and could even be the first major Western central bank to start raising them in late 2013.
Not everyone agrees. Analysts at Nomura and IHS Global Insight see a chance for a cut in the first part of next year and don’t completely rule out a surprise move Thursday. Howard Archer at IHS says low inflation and slack growth mean that the ECB “has ample justification and scope to take interest rates from 0.75 to 0.50 percent sooner rather than later.”
The ECB stance contrasts with that of the U.S. Federal Reserve, which is adding support for the US economy by carrying out open-ended purchases of government bonds until unemployment falls. The purchases keep longer-term interest rates down. The U.S. economy is growing, unlike Europe, but could face trouble from the so-called “fiscal cliff” — automatic spending cuts and tax increase that would result if Congress and President Obama fail to make a budget deal. The Fed next meets Dec. 11-12.
The peso strengthened further on Tuesday as the European Central Bank’s unveiling of a new stimulus plan for the eurozone boosted appetite for emerging-market assets.
US stocks slid for a fourth straight day Thursday, as the European Central Bank took no action to address the eurozone sovereign debt crisis but suggested it may intervene on the markets to lower borrowing costs.
The peso inched up on Tuesday over speculations the US Federal Reserve and the European Central Bank might implement stimulus measures to boost the US and eurozone economies.
Asian markets rebounded on Thursday after a three-day sell-off as renewed fears over eurozone debt were soothed with the European Central Bank indicating it could step in if needed.
Crude prices were mixed in Asia Friday after the European Central Bank (ECB) announced it would cut its main interest rate but indicated there would be no big boost in rescue funding, analysts said.
The euro edged up against the dollar Friday despite new open EU discord over how to muster funds to strengthen the eurozone against contagion.
Asian markets rose Friday after Greece’s prime minister backed away from his controversial plan for a national vote on last week’s eurozone rescue package.
London — Five of the world’s top central banks acted jointly Thursday to provide unlimited dollar loans to banks, a move aimed at easing the growing tensions in the eurozone’s financial sector and shielding the global economy from its jitters. The European Central Bank said it will coordinate with the U.S. Federal Reserve, the Bank [...]
BASEL—Central banks are ready to provide short-term funds to banks, ECB chief Jean-Claude Trichet said on Monday, stressing that the European Central Bank can supply unlimited amounts of liquidity. Trichet also told Greece to implement the reforms it has promised to reduce its public debt, as markets slumped to new low levelss owing to concerns [...]
TOKYO – The euro rose against the dollar in Asia early Monday after the European Central Bank said it would make major purchases of eurozone government bonds. The euro briefly rose past $1.4370 at 2200 GMT Sunday on the ECB announcement of the major purchases plan. It was trading at $1.4361 in Tokyo late morning [...]
