European Central Bank chief Mario Draghi is expected to deliver Thursday his third rate cut since taking over as ECB head last year as the bank steps up its efforts to counter the economic fallout from the long-running eurozone crisis.
The forecast reduction in the ECB's benchmark refinancing rate by
25 basis points to 0.75 per cent would come after moves last week by
European leaders to ease bond markets and spur growth.
Draghi has called on Europe's political leaders to take action to
solve the crisis that is now in its third year and has forced Greece,
Ireland, Portugal, Spain and Cyprus to ask for bailouts.
"The cut seems to be a done deal," said Commerzbank analysts in a
note to clients.
This would also represent the first time that borrowing costs in
the 17-member eurozone have fallen below 1 per cent since Europe's
monetary union was launched more than 12 years ago.
European shares have gained ground in anticipation of a fresh
round of monetary action from the Frankfurt-based ECB.
Draghi is also likely be pressed at a press conference following
the ECB's 23-head governing council meeting to provide more details
on the bank's new role in supervising the eurozone's largest lenders
as envisaged by European leaders at their summit last week.
In addition, the 64-year-old ECB chief is likely to be quizzed on
how far the bank might be prepared to go in easing the tough bailout
terms facing Greece as it battles to put its finances into shape.
Interest rates in the currency bloc have been on hold since
December when the bank lowered borrowing costs to 1 per cent and
began rolling out cheap loans to banks totalling more than 1 trillion
euros.
The move was designed to head off a credit crunch. It helped lower
the borrowing costs of heavily indebted eurozone members Spain and
Italy.
The benefits of the cheap loans programme were short lived.
The European Commission's closely watched economic confidence
survey fell to its lowest level in 32 months in June as more member
states stumbled into recession.
The borrowing costs of Spain and Italy have also risen to almost
unsustainable levels, raising fears that they would be shut out from
the markets and forced to seek bailout.
Analysts believe the ECB could follow up a possible rate cut this
week with an announcement in the coming months of a new cheap loans
programme to try to reverse a slump in growth.
On Monday, Eurostat, the European Union's statistics office said
unemployment in the currency bloc climbed for the 13th consecutive
month in May to hit a record 11.1 per cent.
At the same time, annual inflation in the eurozone remained at a
16-month low of 2.4 per cent in June.
While the data showed inflation in the eurozone remained stuck
above the ECB's 2-per-cent annual target for the 19th month in a row
in June, both the bank and analysts expect inflationary pressures to
ease this year.
"The prospect of moderate inflation allows the ECB room for
manoeuvre to cut its main policy rate further," said ING Bank
economist Martin van Vliet.
Figures released by the ECB showed annual credit growth to
companies and households in the eurozone slid back into negative
territory in May and as a result of moderate price pressures.
