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ECB could act before Fed to add stimulus

July 23, 2019

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FRANKFURT: The European Central Bank could take action including a possible rate cut at its policy meeting on Thursday, as central banks around the globe rev up stimulus to support the world economy through a period of heightened uncertainty from trade wars and Brexit.

The ECB, which sets interest rates for the 19 European Union member countries that use the euro, is expected by many analysts to at least tweak its promise to keep interest rates at rock-bottom levels into next year. The new wording would emphasise that the next move down the road could be a cut.

But a rate cut Thursday is not out of the question either even though one of the rate benchmarks is already below zero.

That would see the ECB moving ahead of an expected rate reduction from the US Federal Reserve, which has an outsized role due to the size of the US economy and the dollar’s status as an international currency for borrowing and trade. Fed officials have signaled they may cut rates at their July 30-31 meeting, from the current benchmark federal funds rate of 2.25-2.5 per cent. Central banks in South Korea, Indo­nesia and South Africa have already cut rates in recent days.

Analysts at bank Morgan Stanley predict the ECB will cut its deposit rate from minus 0.4pc to minus 0.5pc at the bank’s Sept. 12 meeting or before and “wouldn’t be surprised if this was to happen already” at Thursday’s meeting.

Published in Dawn, July 23rd, 2019