ECB Cut Interest Rate to 1.25% – November 3

As expected the European Central Bank lower its basic interest rate by 0.25 percent points from 1.5% to 1.25%.  Mario Draghi, President of ECB, in his first rate decision press conference followed through with the expectations of the market and made this decision. Draghi also stated he expects the Euro Area annual inflation rate to remain above the 2% target of ECB in the months to come, but he doesn’t expect that the rate reduction will increase inflation pressures.   

Mario Draghi and the rest of European Central Bank council convened today in Frankfurt and decided to lower the Euro Area interest rate to 1.25%.

The flash report of the September inflation in the Euro Area slightly rose to 3.0% in annual terms, but the ECB expects the inflation pressures to decline during 2012 as stated by Draghi:

“While inflation has remained elevated and is likely to stay above 2% for some months to come, inflation rates are expected to decline further in the course of 2012 to below 2%.

The ECB council also expects the growth rate to remain low in the second half of 2011 (GDP):

“The economic outlook continues to be subject to particularly high uncertainty and intensified downside risks. Some of these risks have been materialising, which makes a significant downward revision to forecasts and projections for average real GDP growth in 2012 very likely.” 

The chart below shows the changes in interest rate and EURO inflation rate during 2011 (UTD).

CPI EURO AREA 2008-2011 (Y-2-Y) & Basic Interest Rate of ECB November 3

This news started to slightly affect the commodities and forex markets as gold and crude oil prices are currently traded slightly up.

Euros to USD is currently traded at 1.3676 a 0.5208% decrease as of 15:02*.

Current gold price, short term futures (December 2011 delivery) is traded at $1,754.10 per t oz. a $24.5 increase or 1.42%, as of 14:57*.

Current Nymex crude oil price, short term futures (December 2011 delivery) is traded up by 0.16%, at $92.66 per barrel as of 15:01*.

(* GMT)

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Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.