ECB Rate Cut Considered A Dud

As expected, the European Central Bank has followed through with some of the market expectations of a rate cut.  Unfortunately, not all rate cuts are created equally.  Thursday’s decision from the central bank was a cut of 0.25%.  The refi rate was lowered to 1.00% from 1.25% and the marginal lending rate was cut to 1.75% from 2.00%;  the new deposit rate was cut to 0.25% from 0.50%.

The markets are not reacting positively as some might have hoped for the simple reason that the whisper expectation and the hope from some was that the European Central Bank was going to make a 0.50% cut rather than just 0.25%.

The good news is that this at least leaves the chance that another 0.25% cut can occur at the first meeting of 2012.  Sometimes the markets just want more than can be delivered and sometimes the markets just want all of the reaction at once.  It just doesn’t always get it.

Today’s decision is ahead of the European Union summit on the debt and financial crisis on Friday and is on the heels of a large warning of a credit rating downgrade for the entire Euro Zone this week from Standard & Poor’s.

The Bank of England announced this morning that it was keeping its benchmark overnight rates steady.

JON C. OGG