25 bps ECB rate cut will not change growth dynamics: Lloyds

The European Central Bank (ECB) on Thursday decided to lower its benchmark interest rate by 25 basis points to 0.50 percent. Trevor Williams, Chief Economist, Lloyds Bank told CNBC-TV18 that these cuts aren't going to make a huge difference to the underlying growth prospects.

He strongly believes that the growth slowdown in the eurozone this year is even milder than last year. “That is clearly not good news and this was all about showing that ECB is doing something, but a 0.25-0.50 percent cut in the repo rate is not going to change the dynamic,” he said. Below is the verbatim transcript of his interview to CNBC-TV18 Q: You are disappointed with the 25 basis point (bps) cut, were you in the camp that expected at least half a percent? A: No. We were expecting the marginal facility to be cut. A 25 bps cut is not going to make a huge difference to the underlying growth prospects. This is about showing that they (ECB) are doing something, this is about signals and in that respect, they did pretty much what the market was expecting. On the basis that the expectation of markets was formed on the evidence of weaker inflation, which surprised to the downside this week, last week on a provisional numbers and also the weaker growth numbers that everyone is now expecting from the eurozone this year compared with forecast that was made even as recently as January. Q: Did you think that 1.2 percent inflation number was a one of or do you think that is what the trend is? A: No, I think that is what the trend is. What we have is the core countries of Germany, France joining the peripheral economies in slowing down dramatically. So, for example, for France this year we are looking for a contraction of half percent in gross domestic product (GDP). The Germany we are looking at a growth of around 0.6-0.7 percent or so but as dramatically weaker than German growth of the previous few years of 2011 and 2010. German growth averaged around 3 percent. So, it is a very sharp slowdown. That is what it reasons while rule is eurozone growth this year is going to be down by around 0.50 to 0.75 of a percentage point after fall in last year by around 0.25-0.50 percent. So, if anything the growth slowdown in the eurozone this year is even milder than last year. That is clearly not good news and that is the reason why the ECB has to be seen doing something. However, a 0.25-0.50 percent cut in the repo rate is not going to change that dynamic.