Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Download Effect of Lower interest rates:
Document related concepts
Fear of floating wikipedia , lookup
Economic bubble wikipedia , lookup
Fiscal multiplier wikipedia , lookup
Business cycle wikipedia , lookup
Global financial system wikipedia , lookup
Helicopter money wikipedia , lookup
Austrian business cycle theory wikipedia , lookup
Early 1980s recession wikipedia , lookup
Monetary policy wikipedia , lookup
International monetary systems wikipedia , lookup
Transcript
Interest Rates, ECB and Financial Markets Presented by: Paul McDaid Dominic King Iarla Davoren Conor O’Brien Introduction... • ECB and Interest rates... • Why Financial Markets expect cut? • What reduction is expected... • Other options... Interest Rates • Set by national governments and Central Banks… • Governing Council of ECB set rates… • Objective: Maintain Price Stability… Decline of Interest Rates • ECB Vs Bank of England Why do Financial Markets expect a cut? • Trichet’s comments… • Fall in inflation… • Leading Eurozone indicators… Monetary Policy • Monetary Policy… • Interest Rates – Key tool of Monetary Policy… • Expansionary Monetary Policy Effects of lower Interest rates • Reduces the cost of borrowing... • Aims to stimulate borrowing by banks and consumers... • Stimulate economy with increased economic activity... Effects of lower interest rates • Encourage consumption, not saving... • Increase demand for goods and services... • Increase investment, production and employment... Economic Data • Euro-zone recession... • Rising unemployment... • Contracting industrial activity... • GDP forecast to contract in 2009... • Germany... Inflation Disinflation • Inflation 1.2% in February... • Commodity prices... • Weakening global demand... • Contraction in credit growth... Monetary Data • Contraction in M3 money supply growth... • Credit crunch... • Fall in loans to private sector and households... • Interbank Lending... Why financial markets expect a 50bps cut? • Unrest in the governing council... • 50bps cut is most likely as it would act as compromise... • Support of lower rates Vs Fear of lower rates... Why financial markets expect a 50bps cut? Trichet Comments (February) : “ It would probably be more the first figure that you have mentioned” Why not a 1% cut? • More options with 50bps... • Gradual cutting over slashing... • Don’t want to appear panicked... • More than 50bps heading to quantitative easing... How the Rate Cut Affects Financial Markets… • Euribor... • Weaker Euro... • Debt... • Volatility in stock market... Euro vs Dollar What next • Further cut in interest rate… • Liquidity Trap? • Unconventional Monetary Policy... Quantitative Easing
