European Central Bank Executive Board member Joerg Asmussen said an interest rate cut by the ECB would not be effective to euro-area. He said the impact of monetary policy to periphery nations, “where they are most needed,” would be limited as the transmission of monetary policy is impaired. Controversially, Asmussen said that “interest rates are too low for too long can eventually lead to distortions,” noting that “bank lending will only fully come back when the bank balance sheet repair is completed in all member states.” By the same token, German Chancellor Angel Markel said the ECB would have to raise borrowing cost if it was the case for Germany only but taking into consideration the difference among euro area nations, the ECB may need “do even more for more liquidity to be made available.” The announcements of both Asmussen and Merkel come before next week’s interest rate decision by the ECB amid mounting speculations the ECB may cut interest rate after the recent drop in manufacturing and services and drop in German confidence in April which raised concerns the euro area would remain in prolonged recession.
EasyForexNews Research Team