ECB interest rate cut: 'shock and awe' or 'desperation'?

With the Eurozone heading towards deflation, ECB president Mario Draghi finally got out the big guns. Will QE be next?

by Rachel Savage
Last Updated: 05 Jun 2014

The European Central Bank finally rolled up its sleeves today, after months of falling inflation on the continent, and cut its main interest rate from 0.25% to 0.15%. It also slashed the deposit rate to -0.1%, meaning banks will now have to pay to keep cash at the ECB.

With the Bank of England once again holding interest rates at 0.5%, the Euro also fell off a cliff against the pound and dollar (pretty much exactly what the ECB wanted). President Mario Draghi also hinted that he could defy the Germans and go for QE if Eurozone economies don’t miraculously restart – expect more fx fireworks in the coming months.

Here’s what people thought about all the central banking drama:

Some people were surprised

— Richard Perry (@HantecRich) June 5, 2014

Many were pretty pleased

‘Shock and awe tactics were expected from Draghi after months of hints, and he didn’t disappoint, throwing in everything but the kitchen sink of QE.’

Nancy Curtin, chief investment officer at Close Brothers Asset Management

Including French president Francois Hollande

‘I would like to congratulate the decision made today by the European Central Bank to cut rates and improve the financing of the economy’

‘The ECB became aware that the danger is not inflation, it is deflation, it is the risk that the economy does not recover and that states can no longer secure financing.’

The Germans aren’t happy

‘This is a desperate attempt, with ever cheaper money and penalty rates on deposits, to shift capital flows to southern Europe in order to stimulate growth there.’

Hans-Werner Sinn, president of the Ifo Institute and an economics professor at Ludwig Maximilian University of Munich

Neither are the Swedes

‘It's very important now that this does not lead to a strengthening of the krona.’

Anders Borg, Sweden’s finance minister

While some said it underlined the divide between UK and Eurozone

Here, for example, is George Osborne’s most recent tweet

*Tumbleweed*

But, really, many just thought it was a bit pointless

‘Today’s ECB moves are a step in the right direction, but look too little, too late to snuff out deflation-risk and kick-start growth.’

Neil Williams, chief economist at Hermes Fund Managers

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