Majorca Property News

Economy researchers call the ECB's interest rate cut

Because of the depth of the economic slump and low inflation in the euro area, the European Central Bank, the relevant benchmark rate to 0.5 percent. That is the unanimous opinion of the leading economic researchers in Germany. But experts are calling the economy even more.

The leading economic research institutes to advise of further ECB rate cuts to fight recession. "Given the depth of the economic slump and low inflation in the euro area, the European Central Bank, the relevant benchmark rate to 0.5 percent," write the researchers in its spring report.

Even an interest rate of zero percent would be from the perspective of the institutions must not sufficient response to the crisis. Currently, the benchmark rate at 1.25 percent, but central bankers have a moderate reduction in prospect.

The central bank should its tender operations longer than previously made, the researchers recommend the ECB. You should also take measures to unorthodox and corporate and government bonds to buy. It was a circumvention of the banking sector is less promising than in the Anglo-Saxon countries, recognize the institutions. Furthermore, the decision as to which bonds are to be acquired for the central bank politically explosive. "But if the choice is either to buy bonds or deflation to be accepted, is the former is the lesser of two evils", the researchers summarize.


The institutes expect a slow recovery of the international banking system will come.

They include but not completely rule out that due to the balance sheet risks and the equity problems of the money houses for a renewed crisis of confidence might come. The result would be a slump once in orders and production. "That would be a descent into a global deflationary spiral is not unlikely," the researchers warn in their report.

In a deflation, prices fall on a broad front. Consumers and firms to move their investments in the hope that the level drops even further. This creates a downward spiral, the aggregate demand paralyzes.

Reuters / PHJ