Amidst detecting signs that the economy is still on the road to Recovery but in need of a stimulus, the ECB has announced a rate cut from 1 percent by 25 basis points. This seems a step in the right direction, as the supply of credit is available from the banks but enterprise needs that extra encouragement of a stable low long term rate to borrow and invest for growth. Hopefully this will be the silver bullet for growth in Europe, as the Central Bank of China has also cut its main rate by 31 bps to 6 percent. CORRECTION : the rate has been cut to 6 percent, not 3.5 percent as previously noted in error.
All the major economies ought to be moving in tandem, and to help the cause of worldwide economic Recovery and resume consumerism of a required and sustainable scale to create jobs, encourage house and auto purchases, and improve spending on the High Streets, the required ingredient in my considered opinion is the lowering of Central Bank repo rates among the BRICS countries. The rate for example in India and Russia is unsustainably high, and not conducive to growth. If the mature economies have used this formula as a tool for stimulus, why not the BRICS countries also? Brazil and South Africa too have potential to use this tool. And, why not? After all, the world has the Oil price as a constant - it is priced in dollars, and has led to inflation everywhere with its recent highs. If the mature economies see it as a benefit to stimulus to have low interest rates, why not the BRICS nations also?
A repo rate of 8 percent in India has seen the Manufacturing Index drop in recent months, and the figures are suggesting a slowdown, which will impact globaly. The emerging market economies need to stimulate growth, and here they have the benefit of being resources-rich, with young populations and potential and need for building houses, hospitals, bridges, airports, railways,roads, etc, etc, etc.
A rate of 8 percent stifles growth, it frightens industries from borrowing, in view of the global demand picture. But if the domestic demand can be encouraged, with delivering of higher standards of living for the population, this would be an added blessing and more trade can result worldwide.
The manufacturing numbers in Europe seem to be mildly better then previous months, and if industry now takes courage and starts borrowing and investing and creating jobs and consumerism, the anthem for Recovery can continue to play.