European Central Bank President Mario Draghi pushed for yesterday’s interest-rate cut over opposition from Bundesbank President Jens Weidmann and at least two other Governing Council members, according to four euro-area central bank officials.
Weidmann and members from countries traditionally aligned with the Bundesbank wanted to wait until December when forecasts and more data will be available before deciding, said two of the people who asked not to be identified because the talks are confidential. Chief Economist Peter Praet proposed the cut and won support of most members including France’s Christian Noyer, one person said. Two officials said Executive Board member Joerg Asmussen opposed the move. An ECB spokesman declined to comment.
The Frankfurt-based ECB lowered its key interest rate by a quarter point to 0.25 percent after a drop in inflation to the slowest pace in four years threatened its mission to keep prices stable. The decision, which Draghi said was supported by a “significant majority,” was predicted by only three of 70 economists in a Bloomberg News survey, and sent the euro tumbling the most in almost two years versus the dollar.
The opposing minority comprised as much as a quarter of the ECB’s Governing Council, two of the central bank officials said. According to one, that faction favored waiting until December before considering whether to deliver a bigger package that paired a rate cut with more liquidity measures.
The 23 Governing Council members, which consist of 17 national central bank governors and the ECB’s six-member Executive Board, don’t normally comment on their voting behavior. A Bank of France spokeswoman said that Noyer never reveals his vote.
Yesterday’s meeting delivered a cut that was already discussed in July, when available data showed the euro zone was still suffering from its longest-ever recession. That move was opposed by seven council members including Weidmann and Asmussen, Spiegel reported at the time.
The ECB’s first rate reduction since May burnishes Draghi’s reputation as a crisis-fighter and aligns his bank with counterparts such as the Federal Reserve in recently seeking to reinforce rather than retract monetary support. It leaves the euro-area’s main rate just a quarter-point from zero, increasing the likelihood of unconventional tools such as a negative deposit rate if prices slow further or the economy stalls.
“There comes a point where inflation is so weak, and coming in weaker than anticipated, that the case for loosening policy becomes too hard to resist,” said Richard Barwell, senior European economist at Royal Bank of Scotland Group Plc in London, who predicted the cut.
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