NEW YORK (dpa-AFX) – The euro finally fell on Thursday after the European Central Bank (ECB) cut key interest rates.The last European common currency cost 1.0477 US dollars in the New York store. The reference rate had previously been set by the ECB at 1.0491 (wednesday: 1.0507) dollar so the dollar cost 0.9531 (0.9517) euro.
The ECB responded to growing concerns about the economy in the euro area with the fourth interest rate cut this year. As was to be expected, the deposit rate, which sets the trend for the financial market, was reduced by 0.25 percentage points to 3.0 percent. Economists expect further important cuts in interest rates. the ECB lowered its forecasts for economic growth and inflation. However, the uncertainty is high. For example, it is not yet clear what impact the US government’s future tariff policy will have on the eurozone.
“That is not the last step down,” said Ulrich Kater, chief economist at Dekabank. “The economic pessimists now have a lot of weight in the ECB Council.” Kater welcomes the fact that the ECB is proceeding with caution. “Besides the remaining uncertainties regarding price developments, there would be a great risk, given the arguments about the French state budget, that a sharp cut in the interest rate could be seen as a gift for financial policy.”
Simultaneously occurring, the Swiss franc came under pressure alongside all currencies. Surprisingly, the Swiss National Bank (SNB) reduced its main interest rate significantly. It was reduced by 0.50 percentage points, while economists had expected onyl 0.25 percentage points.
“The new SNB boss Martin Schlegel is setting off a scare at the start of his term in office with the audacious interest rate cut of 50 basis points,” wrote Katja Müller, economist at landesbank Baden-Württemberg (LBBW). Low inflation together with weakened economic development and a strong Swiss franc left scope for a further reduction in the main interest rate. Müller expects another decrease in March, but then only by 0.25 percentage points./jsl/ajx/nas
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Interview with Ulrich Kater: Analyzing the ECB’s Interest Rate Cut and Its Implications
In this engaging interview, we dive into the recent interest rate cuts by the European Central Bank (ECB) and the Swiss National Bank (SNB) with Ulrich Kater, the chief economist at Dekabank. We discuss the potential impacts on the eurozone economy and the financial markets.
Q: Ulrich, could you explain the recent decision by the ECB to cut interest rates and its implications for the euro?
A: Certainly! The ECB’s decision to cut the deposit rate to 3.0 percent is a direct response to the growing economic concerns within the eurozone. After the cut, the euro fell to 1.0477 US dollars, down from 1.0507. This indicates that the ECB is taking significant steps to navigate a challenging economic landscape, which includes lower forecasts for both economic growth and inflation. The expectation is that this won’t be the last rate cut, as uncertainty looms large, particularly relating to international factors such as the US’s future tariff policies.
Q: many analysts expect further interest rate cuts from the ECB. What considerations are driving this anticipation?
A: The driving forces behind these expectations stem from the prevailing economic pessimism among policymakers and economists. The slowdown in economic activity and the risk of deflation mean that the ECB may feel pressured to take additional measures to stimulate growth. As we’ve seen, the weight of economic pessimism is significant within the ECB Council, suggesting they are leaning towards further easing rather than tightening.
Q: How should businesses and investors prepare for these possible shifts in monetary policy?
A: Businesses should adopt a proactive approach by reassessing their financial strategies considering potential interest rate cuts. Lower interest rates can lead to cheaper borrowing costs, which may provide opportunities for investments and growth. This is an excellent time for companies to consider capital expenditures or refinancing existing debts.
For investors,staying informed is crucial. Diversification within portfolios is always wise,especially under volatile economic conditions. Keeping a close eye on currency fluctuations could also help in hedging risks associated with the euro and the financial turmoil in the eurozone.
Q: Shifting focus, what do you make of the SNB’s surprising interest rate cut?
A: The SNB’s decision to cut the main interest rate by 0.50 percentage points is indeed audacious, especially under the new leadership of Martin Schlegel. This move indicates a strong willingness to respond to low inflation and a lethargic economic environment. the SNB likely aims to stifle an overvalued Swiss franc while providing a boost to the economy. Analysts speculate that another cut may be on the horizon, albeit in a more measured manner.
Q: What can we learn from these concurrent developments in EU and Swiss monetary policy?
A: The simultaneous rate cuts from both the ECB and the SNB highlight the interconnectedness of global economies. It indicates a broader trend of central banks responding to similar economic pressures.For businesses operating in these markets, understanding these dynamics is crucial. Strategies should incorporate potential adjustments in exchange rates and the overall economic health of regions where they operate.
Q: Any final advice for our readers regarding navigating these economic changes?
A: Staying informed and adaptable is key.This is a dynamic time for the financial markets,and being proactive rather than reactive can lead to better outcomes. readers should consider seeking advice from financial experts and continuously monitoring economic indicators to make informed decisions in this ever-evolving landscape.
Thank you, ulrich, for sharing your insights regarding the ECB and SNB’s recent interest rate decisions and their implications for the economy and financial markets.