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By Francesco Canepa and Balazs Koranyi
Fukoka, Japan / FRANKFURT, Germany (Reuters) – Policymakers at the European Central Bank are willing to cut ECBThe key rate remains in force if economic growth weakens in the rest of the year and if a strong euro hurts a bloc already struggling with a global trade war, said two sources.
the ECB announced Thursday that their interest rates would remain "at their current levels" until mid-2020 but President Mario Draghi added that the charging officials had begun a discussion about a possible reduction or of new purchases of bonds to boost inflation.
The seemingly mixed message failed to convince some investors, who saw it as too tenuous a commitment to further stimulation. This allowed the euro to rise to 1.1337 dollars against the US dollar, its highest level in two and a half months.
But two sources familiar to the ECBPolicy discussions indicated that a rate cut was firmly at stake if the bloc economy were to stagnate again after a 0.4% expansion in the first quarter of the year.
"If inflation and growth slow down, a rate cut is justified," said one source, who requested anonymity ECBThe deliberations are confidential.
A ECB The spokesman declined to comment.
the ECBThe deposit rate is already below zero to 40 basis points and the best-performing governments in the bloc, such as Germany, can borrow at negative rates for up to a decade.
In this context, countering the strength of the euro rather than reducing borrowing costs, which are already at their lowest, would be the main reason for a further reduction in the deposit rate, said one source.
"I will give you five reasons for a rate cut," the source said before repeating "the exchange rate" five times.
the ECB does not officially target an exchange rate, but Draghi pointed to the appreciation of the euro at his press conference on Thursday and has long stressed that the currency was a determining factor of financing conditions.
The source said that a euro at $ 1.15 would still be acceptable to some, but that $ 1.20 would be a critical level to watch.
The single currency rose 2% against the dollar in just over a week as the US Federal Reserve was ready to cut interest rates if needed.
Some badysts saw in this statement a sign that the US central bank was yielding to pressure from the White House to keep the dollar weak and strengthen the position of the administration in its trade negotiations.
The quantitative easing (QE) argument of the ECB was less clear to some decision makers, however, the sources said.
One source said more QE could help placate the stock markets if they were frightened by an escalation of the trade war, although the risk is great for society. ECB by pretending to bow to equity investors.
The other said that the main benefit of QE was to reduce the gap between short and long-term borrowing costs, thus facilitating access to financing for businesses and businesses. households, but that this so-called term premium was already low.
(This story has been rebroadcast to correct the timeline)
(Report by Francesco Canepa in Fukuoka and Balazs Koranyi in Frankfurt, edited by Christopher Cushing)
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