A softer tone but no action

The crisis in Cyprus, together with the continued deterioration in indicators of euro-zone economic activity, should lead the ECB to strike a more supportive tone at this month’s press conference. But while an interest rate cut is possible, we suspect that the majority on the Governing Council will vote against such a move, fearing that it could do more harm than good. With bank lending continuing to fall, President Mario Draghi could usefully suggest some ways to get funds to firms and households. But after threatening to pull the plug on Cyprus, the Bank might struggle to convince markets that it is really willing to do whatever it takes to keep the euro-zone together.