ECB, Bank of England set to stimulate Europe’s economy

Nathan Andrada – Fourth Estate Cooperative Contributor

Frankfurt, Germany (4E) – If the ECB proceeds with the quarter percentage rate cut, it will be the first time for its benchmark interest rate to fall under 1 per cent, setting it at a record low 0.75 per cent, essentially bringing its deposit rates to zero.

The record low 0.50 per cent level in BoE’s key interest rate will likely stay as it has remained unchanged for more than 3 years. Through bond purchases, the BoE is also expected to pump out another £50bn ($ 78bn) in fresh liquidity. So far, the BoE’s Monetary Policy Committee has pumped £325bn of cash into the general economy as part of its QE stimulus policy launched in March 2009 at the time when it cut rates to record low levels.

Analysts say that the BoE will bring more QE given inflation in the UK is falling and due to ongoing concerns in eurozone debt although EU leaders have met at last week’s summit to tackle the crisis within the monetary union. Britain is actually not part of the 17-nation currency bloc, but it heavily trades on those countries.

The ECB’s governing council led by its president Mario Draghi will converge in Frankfurt to discuss monthly policies. In last week’s summit, European political leaders have agreed to moved in the direction of creating a centralized banking authority that will be directed by the ECB.

Progress in the political front could give incentive to the ECB to provide more support and help build confidence on the faltering economies in the euro zone. In May, unemployment in the region jumped to a record high 11.1 per cent. The European Commission estimates that the euro zone economy will shrink by 0.3 per cent in 2012. 

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