The European Central Bank (ECB) might cut interest rates again soon as the eurozone debt crisis deepens, but it will continue to insist that it is up to governments to find a lasting solution, analysts say.
ECB watchers predict the central bank — which will hold its regular policy-setting meeting on Wednesday instead of Thursday, owing to a public holiday — will not alter borrowing costs just yet this month.
However, it could act next month as deepening fears about Greece and possible contagion to other countries push the 17 countries that share the euro back into recession, the analysts predicted.
Photo: Reuters
“The further escalation of the eurozone crisis has intensified the pressure on the ECB to take further remedial action,” Capital Economics chief Europe economist Jonathan Loynes said.
“But while [ECB] President [Mario] Draghi may hold open the prospect of further support of the region’s banks after the meeting on June 6, he is likely to insist again that it is up to national policymakers to address their broader economic and fiscal problems,” Loynes said.
The ECB has never hesitated to act, from the very beginning of the crisis.
It quickly reversed last year’s rate hikes to bring eurozone borrowing costs back down to an all-time low of 1 percent and embarked on a hotly contested program of indirectly buying up the bonds of debt-mired countries.
Most recently, in two so-called long-term refinancing operations in December last year and February, it pumped more than 1 trillion euros (US$1.25 trillion) into the banking system to avert a dangerous credit squeeze in the eurozone.
“Can the ECB fill the vacuum of lack of action by national governments on fiscal growth? The answer is no,” Draghi said again during a hearing at the European parliament last week.
The ECB says that its overriding priority, even in times of crisis, is to keep a lid on inflation in the single currency area.
The latest data indicate that price pressures are indeed under control — area-wide inflation slowed to 2.4 percent last month from 2.6 percent in April and in Germany, the bloc’s biggest economy, inflation slowed to 1.9 percent, its lowest level in 17 months.
Further up the inflation pipeline, too, the money supply expanded by just 2.5 percent in April, a sharp slowdown compared with the previous month, despite the huge amounts of liquidity pumped into the system via the ECB’s anti-crisis measures.
“With the inflation threat receding, the ECB has more scope to stimulate the economy,” Berenberg Bank chief economist Holger Schmieding said.
The ECB will also publish its latest quarterly staff projections on inflation and economic growth on Wednesday.
They are likely to be revised downward, “leaving the door open for further policy accommodation,” Newedge Strategy analyst Annalisa Piazza said.
She saw a “60 percent chance” that the ECB would trim its rates by a quarter of a percentage point to 0.75 percent as early as this month.
Nevertheless, “the timing of a rate cut is highly uncertain,” the analyst said.
While the “weaker fundamentals and increasing stress in financial markets fully justify a quarter-point cut this week, the ECB might decide a later cut is the best tactical option” because borrowing costs are already at record lows and the full effects of the anti-crisis measures have yet to unfold, she said.
Schmieding, too, saw a “good case” for a quarter-point rate cut.
However, the bank would probably wait until next month, by which time the outcome of the Greek parliamentary elections on June 17 will be known, the economist said.
China has claimed a breakthrough in developing homegrown chipmaking equipment, an important step in overcoming US sanctions designed to thwart Beijing’s semiconductor goals. State-linked organizations are advised to use a new laser-based immersion lithography machine with a resolution of 65 nanometers or better, the Chinese Ministry of Industry and Information Technology (MIIT) said in an announcement this month. Although the note does not specify the supplier, the spec marks a significant step up from the previous most advanced indigenous equipment — developed by Shanghai Micro Electronics Equipment Group Co (SMEE, 上海微電子) — which stood at about 90 nanometers. MIIT’s claimed advances last
ISSUES: Gogoro has been struggling with ballooning losses and was recently embroiled in alleged subsidy fraud, using Chinese-made components instead of locally made parts Gogoro Inc (睿能創意), the nation’s biggest electric scooter maker, yesterday said that its chairman and CEO Horace Luke (陸學森) has resigned amid chronic losses and probes into the company’s alleged involvement in subsidy fraud. The board of directors nominated Reuntex Group (潤泰集團) general counsel Tamon Tseng (曾夢達) as the company’s new chairman, Gogoro said in a statement. Ruentex is Gogoro’s biggest stakeholder. Gogoro Taiwan general manager Henry Chiang (姜家煒) is to serve as acting CEO during the interim period, the statement said. Luke’s departure came as a bombshell yesterday. As a company founder, he has played a key role in pushing for the
EUROPE ON HOLD: Among a flurry of announcements, Intel said it would postpone new factories in Germany and Poland, but remains committed to its US expansion Intel Corp chief executive officer Pat Gelsinger has landed Amazon.com Inc’s Amazon Web Services (AWS) as a customer for the company’s manufacturing business, potentially bringing work to new plants under construction in the US and boosting his efforts to turn around the embattled chipmaker. Intel and AWS are to coinvest in a custom semiconductor for artificial intelligence computing — what is known as a fabric chip — in a “multiyear, multibillion-dollar framework,” Intel said in a statement on Monday. The work would rely on Intel’s 18A process, an advanced chipmaking technology. Intel shares rose more than 8 percent in late trading after the
GLOBAL ECONOMY: Policymakers have a choice of a small 25 basis-point cut or a bold cut of 50 basis points, which would help the labor market, but might reignite inflation The US Federal Reserve is gearing up to announce its first interest rate cut in more than four years on Wednesday, with policymakers expected to debate how big a move to make less than two months before the US presidential election. Senior officials at the US central bank including Fed Chairman Jerome Powell have in recent weeks indicated that a rate cut is coming this month, as inflation eases toward the bank’s long-term target of two percent, and the labor market continues to cool. The Fed, which has a dual mandate from the US Congress to act independently to ensure