Another key development that could influence the markets comes Thursday, when the European Central Bank meets. Investors are anxious to know if European leaders have some concrete plan to tame the continent's debt crisis, or merely good intentions.
The European Central Bank determines interest rate policy at their Governing Council meetings. The Council is composed of the six members of the Executive Council and 17 presidents of member central banks (Bank of France, Bundesbank, etc). The Governing Council meets twice monthly (usually the first and third Thursdays of the month). Monetary policy issues are generally discussed only at the first meeting of the month. The European Central Bank has an established inflation ceiling of 2 percent. The ECB's measure of inflation is the harmonized index of consumer prices (HICP). Decisions are reached by consensus. No vote is taken.
Markets were jittery amid growing concerns that the ECB will disappoint expectations for bold steps to counter the debt crisis in the euro zone.
Expectations have been mounting that the ECB will announce measures to lower Spanish and Italian borrowing costs after the bank’s head Mario Draghi pledged last week to do whatever is necessary to preserve the euro.
Earlier in the day, German Bundesbank President Jens Weidmann said that governments had overestimated the ECB's capacities and placed too many demands on it.
European market participants speculate about the possibility of an interest rate change at these meetings. If the outcome is different from expectations, the impact on European markets can be dramatic and far-reaching. The rate set by the ECB serves as a benchmark for all other interest rates in the eurozone.
Euro zone bank-to-bank lending rates hit all-time lows on Wednesday, weighed down by growing expectations the European Central Bank could cut interest rates after its chief pledged to do whatever it takes to preserve the euro.
ECB President Mario Draghi's comments last Thursday fanned expectations the bank could cut rates below the current record low of 0.75 percent and may start charging banks for depositing funds with the ECB overnight - or take even more radical action, such as starting a large-scale asset purchase programme.
The ECB's overnight deposit rate, which it cut to zero on July 5, acts as a floor for money market rates as banks only lend to rival banks if they are able to earn a better rate of interest than at the central bank.
The ECB hopes its unprecedented move will nurture a return of more significant interbank lending by forcing banks to look for more profitable options. Last month, ECB Executive Board member Benoit Coeure suggested it could charge banks to deposit.
Although some money market experts fear the cut could backfire and kill off parts of the market, the move, plus a growing belief the ECB could continue to cut rates, has had an immediate impact on bank-to-bank rates.
Will ECB meeting to cut interest rate ?
For the latest updates on the stock market, PRESS CTR + D or visit Stock Market Today For the latest updates PRESS CTR + D or visit Stock Market news Today
No comments:
Post a Comment