ECB Asmussen Cautions About Effects of Rate Cuts

A top European Central Bank official warned Thursday that another interest rate cut might not be much help for eurozone countries in recession — because already low rates are not getting through to businesses and consumers.
Joerg Asmussen, the bank’s top official for international relations, said that the “pass-through of rate cuts” would be “limited” since troubled banks are not able to send them on. Meanwhile, he cautioned that ultra-low interest rates can take pressure off governments and banks to fix their troubles.
“Monetary policy is not an all-purpose weapon for any kind of economic illness,” he said in a speech in London. The remarks appeared aimed at dampening recently heightened expectations for a rate cut at the bank’s meeting next Thursday. Stocks have risen and the euro has fallen on expectations of a cut.
A run of disappointing economic news this week has fueled market expectations that the bank will cut rates from a record low of 0.75 percent to stimulate the economy of the 17 European Union countries that use the euro. The eurozone is in a recession and the bank expects it to shrink 0.5 percent this year — but start to recover gradually by year end. Data has cast doubt on those hopes.

via Yahoo

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