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European Central Bank (ECB) board member Piero Cipollone said on Friday that central bank should cut interest rates further to support the recovery in the Eurozone and also in the face of potential new trade tariffs in the US, per Reuters. Key quotes The pace and extent of reduction will depend on data. Developments remain consistent with a consumption-led recovery. Whether the recovery will firm up remains to be confirmed. We should not be more restrictive than what is necessary to ensure timely convergence of inflation to target. It could be self-defeating to tolerate an economy running persistently below potential as an insurance against possible future inflationary shocks. Market reaction At the time of writing, EUR/USD is trading 0.08% higher on the day at 1.0535. ECB FAQs The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde. In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of…

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Filed under: News - @ November 18, 2024 12:20 am