FRANKFURT, Germany — Europe’s sinking economy and wobbly banks could get modest help Thursday from an interest rate cut by the European Central Bank.
Economists think the ECB will cut its benchmark refinancing rate by at least a quarter point to 0.75 percent, a record low. On Tuesday, the rising expectation of a rate cut helped lift stock markets in Europe, which have been rallying since European leaders last week announced new measures to fight the continent’s debt crisis.
The ECB is likely to hold off from more aggressive measures, such as new cheap loans to banks. Its president, Mario Draghi, has said there is only so much the central bank can do and that it was up to Europe’s politicians to restore confidence in the 17-country eurozone.
European leaders agreed at a summit in Brussels last week to create a banking regulator under the ECB’s aegis with the power to rescue banks directly. The goal is to spare single governments from being overwhelmed by the costs of rescuing banks and to make it easier for them to access Europe-wide bailout funds.
The measures exceeded financial markets’ hopes and triggered a drop in borrowing rates for financially troubled Spain and Italy.
Economic indicators have pointed down since the ECB’s last rate-setting meeting June 7, when Draghi conceded that there were risks to the bank’s forecast for a modest recovery this year. He also said a rate cut had been discussed at that meeting. The ECB’s refinancing rate is what banks pay when they borrow from the ECB and therefore influences the cost of loans to the wider economy.
