By: DailyForex.com
Today, we reached the expected day; European Central Bank is scheduled to announce the rates, with strong expectations that the Bank will also approve facilitative procedures in order to control the worsening sovereign debt crisis. Central Bank of England is expected at this time to keep monetary policy as it is without amendment, after admitting last month expansion program to buy assets of 50 billion Euros worth. This comes while the Federal Bank have kept the monetary policy as it is, ignoring all the speculation of the possibility to pump more fluidity to the markets.
European Central Bank
Today it is expected that the European Central Bank keeps interest rates at levels of 0.75% installing the deposit rate at 0.0%, after last month’s reduction by 25 points. The refinancing rate is expected to keep it at 1.50% after it was reduced in June from levels of 1.75%. This is part of the bank's efforts to support the weak pace of growth in the euro zone, which was slowed to avoid the economic growth during the first quarter amid worsening sovereign debt crisis.
There are increased expectations that the European Central Bank will take steps, especially after president of the European Central Bank, Mario Draghi’s recent statements. On Thursday, Draghi said that the monetary policy makers will do whatever is necessary to ensure a rescue system for the Euro currency. He also pointed out that the Euro zone is stronger than what some believe, confirming that the firewall is ready to work better than before it.
Last week, Mario Draghi urged decision makers to do whatever it takes to protect the Euro zone from a collapse, including a control of the very strong appreciation in the cost of borrowing. Some investors saw this as a clear signal from the European Central Bank for a possible purchase of government bonds of European countries, mainly of Spain and Italy.
Today, the task of the European Central Bank president, Mario Draghi, is to calm financial markets and investors and reassure them that the future of the Euro zone is safe, especially after the increased yield on Spanish bonds to dangerous levels over 7%, with expectations that the country will request a comprehensive rescue plan.
Many see that this time Draghi will be able to convince the markets that the CEB is still in control of the current situation, and that it will take all measures to avoid the occurrence of the region in a deep recession for the second time since last credit crisis in 2008, especially after he said that the Euro zone is stronger than everyone thinks and that one cannot go back from Euro system.
European Central Bank has to focus on supporting the growth more than maintaining price stability. This is particularly true with the achievement of inflation levels to 2.4% over the last month, which supports the tendency of the bank to ease monetary policy. In addition, the performance of economic activities is very weak amid shrinking industrial and service sector during the past months’ deep pace, add to that the sharp collapse in the levels of confidence in the financial markets.
Therefore, it is expected that the European Central Bank re-activates the program to provide long-term loans at low interest rates (LTRO), in steps to support the collapsing fluidity rates in markets and the pessimism in following the aggravation of the sovereign debt crisis as well as expectations that Spain will request a comprehensive rescue plan.
Dear readers, if the European Central Bank stood idly this time, this might put investors in deep frustrations and the Euro will be hitting new lows, after it had dropped deep during the past month to the lowest levels in nearly two years about 1.21.
As for the Bank of England, there are strong predictions that the Central Bank of England will install the benchmark interest rate at levels of 0.50%. It will also purchase asset program at levels of 375 billion pounds, after the bank expanded it last month by $ 50 billion, and after United Kingdom falling into recession for the third quarter in a row, as the domestic gross product shrank deeper in the second quarter pace at 0.7%. This all is happening amid worsening crisis of sovereign debt in the Euro zone, which is the primacy partner for Britain, and so it has paralyzed the backbone of life, not only in Europe, but in the whole world.