The ECB reduce interest rates to 0.5%, a new record low

reunion-bceThe European Central Bank (ECB) has again lowered interest rates by 25 basis points to 0.50%, now at the lowest level since the euro was born over 10 years ago. This is the fourth consecutive decline in interest rates and the first since July 2012. Reducing the price of money was foreseen by the market and comes at a time of weakness in the European economy and low risk of inflation which in April stood at 1.2%. The only restraint with which the ECB counted on were some statements against this cut that arrived a few days ago from Germany. The fall in interest rates just announced by the ECB is good news for all mortgage holders.

The ECB maintains interest rates at 0,75%

DraghiThe governing council of the European Central Bank (ECB) has decided to leave interest rates unchanged in the euro zone at a historic low of 0,75%. The ECB President Mario Draghi thus adhered to the prediction provided by analysts. However, experts did not rule out a reduction in the price of money in the coming months. In his speech, Draghi stressed that inflation expectations in the euro area remain below the limits set by the monetary authority. “This will allow our monetary policy remains accommodative.”

Also the head of the ECB said the data suggests that the economic weakness of the euro zone will continue during the first quarter of 2013. The central bank expects the economy of the Eurozone to recover “gradually” over this year by the strengthening global demand and the ECB’s policies. Draghi predicts that initial recovery should begin in the second half of the year, with export growth. Draghi stressed the need for the governments of the euro zone countries to continue to undertake structural reforms to further progress in fiscal consolidation and the restructuring of the financial system.

Draghi Urges Spain to Persevere With Sacrifices

The European Central Bank President, Mario Draghi, has encouraged Spain and other southern European countries to persevere with their sacrifices. In a press conference when the central bank announced their decision to maintain the official price of money unchanged at 0.75% in the euro-zone  Draghi responded to criticisms that have been cast his way by, among others, the President of the Eurogroup, Jean Claude Juncker, on the harmful effects of an overdose of austerity.

The ECB President explained the reasons why the European Central Bank Council has maintained the interest rates in the euro-zone  saying that on this occasion the decision was taken unanimously, whereas in the previous session, just a month ago, the same agreement was made by consensus, because there were voices in favour of lowering the official price of money in order to stimulate growth.

“Conditions in financial markets have improved significantly, Draghi said, and capital inflows into the euro-zone are increasing; economic forecasts have been confirmed, although the pulse of the real economy remains weak.”

When asked in the press conference if he thought the worst was now over, Draghi based his optimism on real experience: “If there was a contagion effect in the debt crisis, he said – referring to the tensions that Italy and Spain suffered when the risk premium in both countries shot up almost simultaneously, and eventually spread to France – then I believe that there will also be a contagion effect in the improvement.”

Euro strengthens

A short time ago everyone was scrambling to dump all euro holdings as the euro crisis showed no signs of abating. Looking at the recent rise in the single currency, you would think that everything had been sorted out in the debt crisis region, with EUR/GBP hitting a nine month high with 0.8325 printed.

Against the dollar there were also more gains for the single unit as $1.34 was briefly hit.  The 17-nation euro rose to the strongest in more than a year versus the franc, again amid easing concerns about the European debt crisis. European Central Bank President Mario Draghi said on January 10th that the euro-zone economy will slowly return to health in 2013 as the region’s bond markets stabilize.