Special report on European Central Bank Monetary Policy review

European Central Bank cut interest rates for the first time in 10 months, promising
to provide as much liquidity as euro zone banks need well into next year and to
help smaller companies get access to credit. Commodity market recovered as
trader digested the implications of the European Central Bank's interest rate cut,
bullion recovered by almost by +1.40% in case of Gold, Silver recovered to trade
with the gains above +2.00% while copper received brief and limited support, as
lingering bearish drivers weighed on metal markets. The metal were traded with the
volatility immediate aftermath of the rate cut, but moved higher as the impact of
the news set in. Already on Wednesday we have seen pressure mounting after data
showed manufacturing growth in China and the US, the world's two largest copper
consumers, slowed last month. The industrial metal has been under pressure for
much of this year from signs that China's appetite was slowing.
The ECB cut its main interest rate to a new record low in an attempt to drag the
euro zone out of a prolonged recession. As was widely expected, the ECB's
governing council voted to cut the main refinancing rate by 0.25 of a percentage
point to 0.50%. The rate, which determines the cost of over EUR850 billion in ECB
loans outstanding, had stood at 0.75% since July. The metals markets had been
eagerly awaiting the decision, as any kind of shift to a more accommodative policy
should benefit metals
Speaking at the ECB’s post-policy meeting press conference, Draghi said that the
central bank’s monetary policy has been "extraordinarily accommodative." He
added that the ECB will continue conducting the main refinancing operations as
fixed-rate-tender procedures with full allotment for as long as necessary." Draghi’s
comments came after the ECB cut the benchmark interest rate by 0.25 basis points
to a record-low 0.5%. The central bank also lowered its marginal lending to 1%
from 1.5% and left its deposit facility rate unchanged at 0.0%. Lower interest rates
can give gold a lift, as it decreases the relative cost of holding on to the metal,
which doesn't offer investors any similar guaranteed payout. Also today, the US
Department of Labor said that the number of individuals filing for initial jobless
benefits in the US last week fell by 18,000 to a seasonally adjusted 324,000, the
lowest level since January 2008. Separate reports showed that the US trade deficit
narrowed more-than-expected in January, while US non-farm productivity rose
less-than-expected in the first quarter. Market players now looked ahead to Friday’s
highly-anticipated US monthly jobs report to further asses the strength of the
country’s economy and the need for further stimulus from the Federal Reserve. Any
improvement in the US economy could scale back expectations for additional easing
by the Fed. The central bank said in a statement Wednesday that it would continue
with its USD85 billion monthly bond-buying purchases, but added it may raise or
cut the program, subject to economic conditions.


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