The ECB Rate Cut

The ECB cuts interest rates, and looks like it’s doing something powerful to prevent a deflationary bust in the Eurozone. We try to explain why it’s a weak move, over on Pieria:

“The reasoning is that the rate cut will lower short-term money market interest rates, and therefore shift the cost of funding downwards across the entire yield curve, giving a boost to spending in the Eurozone at a time when it is sorely needed. …. [In fact] it is a way of appearing to deliver major monetary stimulus without doing much at all. It allows the ECB to carry on doing close to the minimum necessary to stimulate the Eurozone, even as it fails on its own terms – the Eurozone is on course to enter a disinflationary bust, with core inflation heading well below its (already highly conservative) mandate of an inflation rate just below 2%.”

Read on here

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