Cistran Finance Exploring the Spirit of Capitalism's New Frontier

Friday, November 16, 2018

European Central Bank cuts main refinancing rate

The European Central Bank cut its main refinancing rate to a record low last Thursday in reaction to a shocking decline in inflation.

This is the second surprise from a central bank in less than two months after the U.S. Federal Reserve decided not to trim its monthly bond purchase stimulus in September, Reuters reports.

In the aftermath of the Fed's decision, the yield on the U.S. 10-year Treasury bond fell sharply, showing no sure signs of revisiting September peaks for the year.

The ECB's rate cut helped weaken the euro by more than one percent on the dollar, which many economists believe will put the currency on a firmly lower path going forward.

Economists also believe that these kind of surprise tactics will become more prominent on the global market.

"It makes sense that with the artillery becoming depleted, central banks want more bang for their buck now. One way of doing that is to launch surprises in markets," Philip Shaw, the chief economist at Investec in London, said, Reuters reports. "It wouldn't be a shock if the ECB was pleased that it surprised markets."