Cut to ECB’s main interest rate looking likely

There will be a backlash from the markets if the ECB does not give clear guidance on unconventional measures to stimulate growth in the region allied to an interest rate cut.

A number of comments from ECB board members over the past few weeks have ratcheted up expectations that there will be a cut to the ECB’s main interest rate and the deposit rate will drop below zero.

However, the problems of the banking system, which is still struggling with high levels of non-performing loans, means the transmission mechanism for getting credit flowing is not functioning properly.