ECB interest rate cut and credit loosening looks likely

The European Central Bank is widely expected to cut interest rates and loosen credit at its next rate-setting meeting this Thursday.

ECB president Mario Draghi has already signalled the bank may cut interest rates or launch a bond-buying programme to counter low inflation and weak lending in the 18-country eurozone.

“We are not resigned to allowing inflation to remain too low for too long,” he said last week.

“There is no debate about our goal, which is to return inflation toward 2 per cent in the medium-term, in line with our mandate.”

Mr Draghi said he expects inflation, which is running at 0.7 per cent, to return slowly to the ECB’s target of just under 2 per cent.

His comments follow suggestions from other ECB policymakers that the bank is ready to act. Officials have said they’re working on a package of possible measures for this Thursday’s policy meeting, including interest-rate cuts and liquidity injections, while holding out the prospect of asset purchases as a more powerful option.

The ECB’s deposit rate already stands at zero and a cut into negative territory would see it essentially charge banks for holding their money overnight – a move that could spur more lending.

Today, the European Commission is presenting country-specific recommendations for countries, including Ireland, on the economy for the next 12-18 months.

The Commission will recommend budgetary, employment and other structural reforms that each Member State should carry out over the next 12-18 months to help them boost growth.

The annual country-specific recommendations form part of the European Semester, the EU’s calendar for economic policy co-ordination, which is designed to prevent future crises by catching and remedying problems before they spread.

The recommendations also encourage Member States to meet their long-term targets on employment, education, research, climate change and poverty reduction under the Europe 2020 strategy.