ECB cuts interest rate to 0.25 per cent, euro tumbles
The European Central Bank has cut its benchmark interest rate to 0.25 per cent, from 0.5 per cent. EUR/GBP has fallen to its lowest since 16 January:
EUR/USD went from 1.35 to 1.3350 after the announcement:
The interest rate on the marginal lending facility will be decreased to 0.75 per cent, with effect from 13 November 2013. The interest rate on the deposit facility will remain the same at 0.00 per cent. ECB president Draghi will comment on the decision at 1.30pm.
The rate cut, says Capital Economics, is welcome, but not a game-changer: "the ECB alone cannot address the deep-seated problems still facing the single currency union."
Howard Archer, IHS Global Insight:
The ECB’s decision to cut its key interest rate is obviously the consequence of uncomfortably low and falling Eurozone consumer price inflation. The ECB’s mandate is for a Eurozone consumer price inflation rate of “close to but just below 2.0 per cent”, and at just 0.7 per cent in October the inflation rate is no longer at a level that can be seen as consistent with the ECB's target rate.
While it seems unlikely that an interest rate cut to 0.25 per cent would have a major impact in boosting Eurozone growth, it may at least help keep the euro at a more competitive level and limit market interest rates.
Ishaq Siddiqi, ETX Capital:
A big question for the market is how effective is this rate cut really? Conditions in the euro zone are likely to see a meaningful change after this rate cut – it seems more of a demonstration by the ECB to move away from liquidity pumping measures to measures which will ensure sustainable growth feeding into the real economy. The move therefore could be more symbolic of the ECB’s evolving strategy to stimulate the euro zone economy. Earlier, the BOE kept policies unchanged, as expected – muted response in markets. Eyes are now firmly on Draghi for more.