Eurozone Interest Rate Decision and EUR Exchange Rates

Today at 12:45pm UK time we have the latest interest rate decision for the Eurozone and an accompanying statement from Head of the European Central Bank (ECB) Mario Draghi. It is expected that there will be no change in interest rates and that they will remain at the low levels of 0.25% however all eyes will be on Mr Draghi as the ECB are currently faced with a very challenging situation surrounding falling inflation. Inflation levels in the single currency economy have been falling steady for a while now and it getting very close to showing negative figures, otherwise known as deflation which can cripple an economy and put a significant amount of pressure on the ECB. Falling inflation means that the price of goods and services is falling which is generally caused by the lack of spending and so is countered by the central bank cutting interest rates so that it discourages saving and trys to promote spending but with Europe’s interest rates at 0.25% there is very little room for an interest rate cut unless the bank decide to take the unprecidented step and implement negative interest rates. So, with this unlikely, the ECB may have to take other steps such as pumping more money into the economy as this should help boost inflation levels.

It is rumoured that the ECB are split over whether to  act now to prevent deflation or to wait, so Mr Draghi’s announcement today will be very interesting as it is likely he will be questioned over any future policy decisions surround inflation and any comments will be monitored very closely by the markets. Any mention of policy changes could cause some major EUR volatility so if you need to transfer funds into or out of the Eurozone it will be worth watching this afternoon’s announcement.