Long live the trends of central bank easing! The European Central Bank (ECB) just delivered on what was being hoped for, and that is a formal interest rate cut. The ECB lowered the refinance rate down to 0.25% from 0.50%, and it also lowered the marginal lending rate down to 0.75% from 1.00%.
If you would like a comparison to these in U.S. terms, that is rather simple. It is effectively like thinking of these two as the Fed funds rate and the discount rate.
The ECB left the deposit rate unchanged at 0.00%.
As currency holders chase higher relative rates, the euro currency will likely be under pressure against the dollar and the yen.
These rate changes will take effect on November 13, 2013, according to the ECB official statement.
The long and short of the matter is that this puts quantitative easing on the table even longer. Europe has started to recover from the lows, but inflation is still lower than its target. This allowed the cut to be made, and the same arguments can be made for the United States on its endless $85 billion in monthly bond buying.
Filed under: Economy