BLBG: Majority of ECB Governing Council Said to Back Rate Cut
A majority of European Central Bank policy makers were open to cutting the benchmark rate yesterday and there is a possibility of a reduction early next year if the economy doesn’t pick up, three officials with knowledge of the Governing Council’s deliberations said.
Rates were kept on hold because of concerns about the negative signal a cut might send in conjunction with the significant downward revisions to the ECB’s growth and inflation forecasts, the officials said on condition of anonymity. Lowering rates will be considered again next month, one of the officials said. An ECB spokesman declined to comment on what is discussed in council meetings, which are private.
The euro fell a quarter of a cent on the report to $1.2903.
ECB President Mario Draghi said yesterday that while there was a “wide discussion” about interest rates, “the prevailing consensus was to leave the rates unchanged.” The ECB held its benchmark at a record low of 0.75 percent and kept the deposit rate at zero.
‘‘If the situation doesn’t improve -- and there is relatively a small chance there will be a significant improvement -- it’s possible to expect a move in interest rates next year,” ECB council member Jozef Makuch told reporters in Bratislava today.
Forecasts Cut
The ECB yesterday forecast that the 17-nation euro economy will contract 0.3 percent next year, cutting its estimate from 0.5 percent growth projected in September. The central bank also forecast that inflation will slow to 1.6 percent next year and 1.4 percent in 2014, well below its 2 percent limit.
“There are clearly problematic developments in the realm of the real economy,” ECB council member Ewald Nowotny said in Vienna today. The ECB’s forecasts underwent “a dramatic deterioration, a significant downward revision to an extent we rarely see,” he said. “There is a multitude countries that will shrink” this year and next and “that’s a significant challenge.”
Two officials said that because the ECB has not finished analysing the impact of a negative deposit rate, a cut yesterday would have affected only the benchmark.
To contact the reporters on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net; Jeff Black at jblack25@bloomberg.net
To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net
