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Ex-Fed Official on ECB's Interest Rate Policy

European Central Bank council member Erkki Liikanen told CNBC in an interview that there never was a floor under the ECB's record low 1 percent interest rate.

E.U.
Photo: Bloomberg | Getty Imgaes
E.U.

But how likely is another cut in interest rates at this point, and how effective would such a move be?

“In the Fed we reduced interest rates to between 0-0.25 percent,” Randall Kroszner, former U.S. Federal Reserve Governor told CNBC. “The ECB could cut rates to bring it lower.”

“The question is, how much demand [for borrowing] will there be?” Kroszner said. “Even if rates are really low, if people are uncertain about where things will be they are not going to borrow.”

The impact of a rate cut would not be as great on the euro zone as it has been for the U.S. because of the single currency area's different economies, one analyst pointed out.

“Europe is a patchwork quilt in terms of impact that lower rates will have,“ Michael Browne, Fund Manager at Martin Currie, said, explaining that what impacts Spain doesn’t necessarily affect Germany.

“Because we are not geared in Europe to short-term rates, it's arguable to how effective a rate cut will be except to put a little bit more cheer into financial markets,” Browne added.

Contact Europe: Economy

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