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ECB interest rate-setters seek to reassure markets


Rates: European Central Bank (ECB) President Mario Draghi. Photo: REUTERS
Rates: European Central Bank (ECB) President Mario Draghi. Photo: REUTERS

The European Central Bank (ECB) will hold an interest rate-setting meeting on Thursday when it will likely seek to reassure financial markets while not adding to panic setting in around Europe’s sluggish economic performance.

Germany, France and Italy are now all flatlining economically, creating concerns that the eurozone economy may be headed for recession and a potential trigger for the ECB to push rates even deeper into negative territory.

On Thursday, the ECB will issue new economic forecasts and will likely cut its December forecast for growth this year of 1.7pc. “With increased economic uncertainty, changing forward guidance to ‘interest rate to remain at their current levels at least until the end of the year’ would be a no-brainer,” said Carsten Brzeski, chief economist at ING Germany. “However, this won’t necessarily happen at next week’s meeting but rather at some point in the future,” he said.

With the ECB looking set to keep interest rates on hold for longer than expected, mortgage rates here also look set to remain low, although Bank of Ireland warned this week that rates for consumers would start to rise from here.

While the economy here has been growing at breakneck speed, elsewhere in Europe, the story has not been so good.

The European Commission recently slashed its growth forecasts for this year to just 1.3pc with the largest downgrades in Germany, Italy and the Netherlands.

Twenty years of the euro has for most of the 19 countries produced sub-par growth. Now the bloc faces the prospect of heading into the next recession in the budgetary straitjacket of the Stability and Growth Pact and with the ECB unable to cut interest rates.

While the economy here has boomed and record numbers now have jobs, we are vulnerable to any downturn in global growth as exports are such a large part of the economy, and foreign firms pay a large chunk of tax revenues.

There is also a potential hit from a hard Brexit which the Central Bank of Ireland has warned could lop 4pc points off growth this year, as well as a smouldering trade war between the US and the EU.

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Irish Independent

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