ECB rate & press conference (live)

later12

The ECB today decided to keep its main refi rate at 1.50%.

http://www.bloomberg.com/news/2011-08-04/ecb-keeps-key-rate-at-1-5-as-crisis-spreads.html

Far more important, today, is the question of how the ECB shall respond to the ongoing crisis in peripheral yield spreads and European stocks, given that markets today seem to be optimistic that the ECB will have something nice to say.

Speculation is that the ECB may re-engage with its bond buying program, although many think that this is unlikely, and that the ECB will want the Eurozone leaders to move first - particularly in relation to the EFSF, of which there is still so much uncertaintly.

Live streaming is available here from approx. 1:30p.m. Irish time

http://www.ecb.int/press/tvservices/webcast/html/webcast_110804.en.html

damino

The ECB should have cut their rate back to 1%. Most of the Eurozone is facing contagion from the debt crisis. Worring about inflation at 2.5% tells me they don't understand the dire consequences of the debt crisis. The ordinary worker with a mortagage or a business wishing to invest by borrowing money is being penalised because central bankers live in a bubble. At least the US/UK, Japan Central banks have their's at a more appropritate or suitable rate.

later12

Cutting the rate back to 1% wouldn't have done anything useful - in fact there is a reasonably strong argument to say that the current low interest rates are only fuelling the crisis.

What was crucial today was for the ECB to say that they were re-opening the SMP (bond purchase program on the 2ndary markets). They effectively said this, and gave investors lots of reasons to feel confident, and yet yields on italy, for example, have drifted back out to 6.2%.

The ECB did all it could reasonably have done today - it left the interest rate alone, it committed itself to the SMP, it reiterated confidence in the EFSF and said all the right things about the Eurozone - the market is not convinced. No bounce - not even a dead cat bounce - that's worrying.

toby2111

Excuse my ignorance,but how are low interest rates fuelling the crisis?by raising them are banks not pushing more people over the edge and taking more disposable income off people which then causes businesses to lay off staff or close.Seems like a downward spiral but I'm no economist!

amacca

toby2111 wrote: »

Excuse my ignorance,but how are low interest rates fuelling the crisis?by raising them are banks not pushing more people over the edge and taking more disposable income off people which then causes businesses to lay off staff or close.Seems like a downward spiral but I'm no economist!

im sure theres more to it and I'm no expert or even an amateur...but I would hazard a guess that at least part of it may be the mere fact that because the ECB is forced to keep its interest rates low when it would rather not.....that in itself is an indicator of how big the problem is to investors etc...thus making more of them want to sell anything liquid/dump goverment debt/not want to take it up etc and instead want to get into what are seen as safer investments/commodities etc...this is not good for a currency/government debt etc if enough people holding these are trying to do this at any one time..thus worsening the crisis

if I'm not mistaken low interest rates do normally lead to cash being easier to lay ones hands on via credit [at least during normal times albeit obviously not the case in ireland] .....the fact that more cash is getting into circulation means the price of things go up and this inflation devalues the buying power of your currency... so again the push is there for investors to get out of certain currencies as the value of their investment in this area would be going down if the above is happening...they would presumably then want to shun shun anything seen as risky such as government debt thus worsening the spiral etc

would like to hear other more informed opinion on the above.

gigino

if we had not been forced to have low interest rates to suit the germans between 03-07, we would not be in the mess we are in now.
The british were proved correct, in staying outside the euro.

inho, the best way to dissolve the debt crises is by inflation. That is the only way to solve the property crises, in time.

deflation makes people want to hoard money because things will be cheaper next year + because they are afraid of the future.

Sea Sharp

Ye could see that coming a mile away!

johnnyskeleton

gigino wrote: »

if we had not been forced to have low interest rates to suit the germans between 03-07, we would not be in the mess we are in now.
The british were proved correct, in staying outside the euro.

inho, the best way to dissolve the debt crises is by inflation. That is the only way to solve the property crises, in time.

deflation makes people want to hoard money because things will be cheaper next year + because they are afraid of the future.

If the problem with the euro is low interest rates, and the British realised this and kept out of the euro for that reason, why did they also have a policy of low interest rates in parallel to the ecb? This crazy telegraph justification for keeping out of the euro is a mere soundbite, not a realistic analysis of what happened

gigino

johnnyskeleton wrote: »

If the problem with the euro is low interest rates,...

THe problem with the euro was it was foolish to keep the same interest rate here as in Germany for example. 5,6,8 years ago Germany needed / wanted low interest rates - they got their way but by imposing the same interest rate on us it was suicidal for our economy, especially with the lack of regulation and government control.
The UK can control their own interest rates. Thats why their crash was much less. Their banks have recovered. Their property market is not quarter as bad as ours. They have an actual economy.

PhatPiggins

gigino wrote: »

if we had not been forced to have low interest rates to suit the germans between 03-07, we would not be in the mess we are in now.
The british were proved correct, in staying outside the euro.

inho, the best way to dissolve the debt crises is by inflation. That is the only way to solve the property crises, in time.

deflation makes people want to hoard money because things will be cheaper next year + because they are afraid of the future.

Damn you Germany don't you know Irish people can't be trusted to spend money in a sensible way!!

Thats like blaming a petrol station for selling you the fuel that was in you're car when you crashed.

amacca

PhatPiggins wrote: »

Thats like blaming a petrol station for selling you the fuel that was in you're car when you crashed.

yeah but we were blind drunk at the wheel...there was definitely a smell of petrol leaking from the tank and we were about to light up a cigar.......they should have called the finance police and had us locked up rather than refueling us.

sorry I couldn't resist...I more or less agree with your point PhatPiggins.

later12

toby2111 wrote: »

Excuse my ignorance,but how are low interest rates fuelling the crisis?by raising them are banks not pushing more people over the edge and taking more disposable income off people which then causes businesses to lay off staff or close.Seems like a downward spiral but I'm no economist!

The suggestion that is made is that low rates are pushing investors out into searching profits in non standard areas, like aggressively trading some peripheral bonds in order to create returns. There are lots of arguments in favour of low interest rates, that's just a possible downside.

bamboozle

so can we expect a 0.25% or 0.5% reduction today?

from what i've read if we see a 0.25% cut today we'll see another 0.25% cut in early January.

EggsAckley

bamboozle wrote: »

so can we expect a 0.25% or 0.5% reduction today?

from what i've read if we see a 0.25% cut today we'll see another 0.25% cut in early January.

43.8 economists surveyed (thats 60% of 73) according to Reuters reckon it'll be .25 - no mention of .50. Draghi seems a bit more gung ho but who knows, there's always reasons for them not to cut

poppers

bamboozle wrote: »

so can we expect a 0.25% or 0.5% reduction today?

from what i've read if we see a 0.25% cut today we'll see another 0.25% cut in early January.

just seen on twitter that its cut by 0.25%

bamboozle

The European Central Bank has cut its key interest rate by a quarter percentage point to 1% to help the euro zone economy as it slides toward recession because of the debt crisis.
The bank last cut rates only five weeks ago on November 3.
Permanent TSB had said it will pass on the 25 basis point rate cut to its variable rate mortgage customers.

good news for Permanent TSB variable holders...hope the rest follow suit!

jessiejam

Even better news for those who got a tracker between 2004 and 2008

jester77

Nearly not worth keeping money in the bank now

thebman

jester77 wrote: »

Nearly not worth keeping money in the bank now

Your money goes in one way or another, the government sees to that.

kennyb3

I know people are worried about the day to day stuff that affects themselves but some serious stuff in there from Draghi:

- No mass bond buying - Italy 10yr rate flew up
- Ruled out lending to IMF - another partial solution ruled out


Really dont see how Italy can re-finance in Feb to Apr. Even if the summit goes well tomorrow (and prob Sat), cant see the yields coming down enough in the interim.

IMF could buy Italy 12-18 months but will need to come up with extra funding elsewhere.

nesf

kennyb3 wrote: »

I know people are worried about the day to day stuff that affects themselves but some serious stuff in there from Draghi:

- No mass bond buying - Italy 10yr rate flew up
- Ruled out lending to IMF - another partial solution ruled out


Really dont see how Italy can re-finance in Feb to Apr. Even if the summit goes well tomorrow (and prob Sat), cant see the yields coming down enough in the interim.

IMF could buy Italy 12-18 months but will need to come up with extra funding elsewhere.

That's more deserving of its own thread than being a post in this one.

liammur

gigino wrote: »

if we had not been forced to have low interest rates to suit the germans between 03-07, we would not be in the mess we are in now.
The british were proved correct, in staying outside the euro.

.

Am, are you not forgetting that instead of cooling an overheating property market and economy, we threw further petrol on the fire by giving developers and speculators every tax break under the sun.

nesf

liammur wrote: »

Am, are you not forgetting that instead of cooling an overheating property market and economy, we threw further petrol on the fire by giving developers and speculators every tax break under the sun.

Don't forget cutting income tax, shrinking the tax base, cutting VAT and raising social payments across the board. Twasn't just tax breaks that were the problem remember.