European Central Bank

Posted by Toni - May 26th, 2014

Occur, It would be a historic event since for the first time in more than 50 years, the benchmark interest rate would be located at that level. But: why may this new cut of rates have a different and more persistent impact had that previous cuts? It is worth saying that firstly, low interest rates have not until now too to activate the credit, since banks are reluctant to make loans because of their own need for short-term capital. But this new cut of rates located in bailout plan to a key ally to generate a positive impact in this regard. The new cut of rates will generate a further reduction in the credit market rates, which maintain a close relationship with the reference interest rate, and this will encourage a greater demand for credit. In addition, the Federal Reserve announced in yesterday that will begin to make loans to companies in the country, for this will calm nerves in the debt markets of short-term and assure companies secure access to funding. The interest rate that would apply in this case the Fed would be about between 2% and 4% and would represent a vital contribution to the market for short-term debt.

This will serve to ensure that a portion of the demand for financing is covered. Also would generate a positive effect on the confidence of investors in short-term debts which could help retrieve the financing offer. With the content of possible new shocks financial system, which also contributes to restore the confidence of the market, the Government of the United States, is analyzing a new economic revival plan to thus be able to return as quickly as possible to the path of growth. About this possible plan, Ben Bernanke had felt a few days ago that: Ideally, a budget plan would not only stimulate the overall spending and economic activity, but it should also be aimed at solving certain factors that have the potential to extend or increase the economic slowdown. In short, the multiplicity of actions that both the US Treasury.UU., as the Federal Reserve are carrying out to recover the economy, make this possible new cut likely to distort the market mood and thus generate a positive effect in terms of economic activity. But this new cut raises a question mark over the prospects for the dollar against the euro: can possible trimming of the Fed rates weaken the dollar against the euro? Possibly this is not the reason if it is that the dollar came to losing strength against the euro, since the President of the European Central Bank confirmed the possibility of the ECB also carrying forward a cut in rates at its November 6 meeting. Possible new trimming of rates of the ECB in addition to favor the dollar against the European currency, would represent a new contribution, not only to the recovery of the eurozone economy, but also for the recovery of the American economy since it helps to twist the expectations about global economic prospects. Economic recovery became the linchpin of the efforts of the Fed and is for this reason that all the efforts carried out are geared to this objective. You have this time possible interest rates cut a lasting effect?

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