ECB Prepares For a Rate Cut on Worsening Crisis

Tradervox (Dublin) - Despite the European Central Bank President indicating that the current interest rate will be held up to 2013, there is growing pressure for lower interest rates. Most of the economist surveyed ahead of the ECB rate decision later today, expect the ECB to maintain the 1 percent interest rate. However, few are predicting a reduction of 0.25 percent.

Pressure for the European Central Bank to reduce the interest rate is coming from governments that are struggling with their financial sector such as Spain. Most leaders around the world are also indicating that the European leaders are not doing enough to solve the crisis and a reduction of the interest rate would be seen as a commitment to reducing the current crisis. The G7 conference call meeting agreed to undertake a coordinated response to the turmoil which has taken eight nations in the euro area into recession.

In a statement last week, Mario Draghi, the ECB president indicated that the currency bloc is unsustainable in its current form and he is set to hold stimulus until governments undertake measures to curb the causes of the debt crisis. According to Juergen Michels, from Citigroup Inc in London indicated that the ECB has taken a wait-and-see approach, where it expects governments in the euro area to take action before it can take additional measures. However, the current combination of falling investor sentiments and inflation in the region is adding pressure on the ECB to lower interest rates.

In their conference call meeting, the G7 finance ministers and central bank officials talked about progress financial and fiscal union in Europe focusing on Spain and Greece crisis. The leaders reiterated their commitment to speeding up their efforts to solve problems in the region. The Japanese Finance Minister Jun Azumi said that the sentiments from euro area leaders were encouraging and pledge support for the region from his government.

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