ECB cuts interest rates to 0.5pc

Nia Williams

May 2, 2013

The ECB had previously had the rate set at a conservative 0.75% but the widely anticipated move is a welcome sign of a change of attitude.

However the eurozone remains split between the core countries such as Germany and France, which benefit from low borrowing cost, and peripheral countries where borrowing costs remain high for both companies and governments.

Nancy Curtin, chief investment officer of Close Brothers Asset Management, said: “The ECB’s move to cut rates is a positive step away from austerity and a step towards growth in Europe.

“We may not have seen it reflected in overt policy until this point but it’s clear that European policymakers are taking on board the fiscal impact of austerity as unemployment across the eurozone hits a record high and becoming more flexible to try and prevent a downward spiral across the eurozone.”

Curtin said the cutting of the rates may help bolster public confidence but warned that it may not be enough to stimulate increased economic activity.

She added: “While trimming rates should bolster public confidence, by itself it may not be enough to stimulate increased economic activity. One of the key hurdles to growth in the eurozone is the restricted supply of credit to SMEs.

“We would welcome an ECB equivalent of the Funding for Lending Scheme which could be a shot in the arm for many weakening European economies.

“Given weakening economic data we need to see more bold moves towards a pro-growth policy from individual governments – as well as the ECB – before investors will begin to get excited about EU equities once more.”

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