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Mario Draghi Wastes No Time Taking Charge at ECB: The Ticker

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Ticker: ECB Interest Rate Cut under Mario Draghi

By David Henry

Talk about making a strong first impression. After only three days as president of the European Central Bank, Mario Draghi oversaw the first interest-rate cut in the euro area in more than two years. Borrowing costs were lowered today by 25 basis points to 1.25 percent.

Draghi, only one of 23 members of the central bank's rate-setting Governing Council, whose decision was unanimous, may well be the most influential person standing between financial stability and a breakup of the euro in its current form. Even though his predecessor, Jean-Claude Trichet, indicated last month that a rate cut was possible, few observers saw it coming so soon. Only four of 55 economists surveyed by Bloomberg had predicted the move, which creates the market impression that Draghi is ready to do whatever it takes to save the euro.

Maybe. Draghi also made it clear in a just-completed news conference that the ECB has its limits: The central bank, he said, couldn't do politicians' jobs and act as the lender of last resort to governments.

The rate cut is all the more daring as inflation sits at a three-year high of 3 percent, well above the ECB's 2 percent target. Unlike the Federal Reserve, which has a dual mandate of ensuring price stability and stimulating economic growth, the ECB's primary objective is to "maintain price stability." Once that's achieved, it has the scope to support employment and economic growth.

It's too soon to draw conclusions on Draghi's future approach as ECB president, but Vice President Vitor Constancio says he's a consensus-seeker. Let's hope Europe's leaders can reach a similar consensus as their debt crisis deepens.

(David Henry is an editor at Bloomberg View.)

-0- Nov/03/2011 15:30 GMT

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