A rate cut but no more

With the euro-zone’s debt crisis intensifying again and the economic downturn deepening and broadening, we think that the ECB will opt to cut interest rates by 25bps in July. But the Bank seems unlikely to announce more long-term lending, believing that the financial system as a whole has enough liquidity. President Draghi will probably also argue that if large sovereign bond purchases are to be undertaken, that is the place of the EU bail-out funds and not the central bank.