ECB takes (a little) action

"It's like opening the windows in a convertible when the top's already down". That is how one market commentator has described the European Central Bank's (ECB) widely anticipated rate cut: Welcome, maybe, but unlikely to bring a big change in the weather for the periphery economies currently locked in the boot.

The euro rose in value, around the time the rate decision was announced, only to fall through the floor later on during the ECB President's press conference, falling 0.7% against the dollar in not very much time at all.

Does that market reaction make any sense? Not really. Long-term, as I've argued in the past, it's hard for most economists to see the eurozone's 17 economies coming through this without a weak currency.

Rebuilding their competitiveness within the eurozone is hard enough for the periphery countries, without the added disadvantage, in world markets of a strong exchange rate.

That is one reason why you might be puzzled that the euro has usually gone down at the worst moments of the crisis - and risen in value when policy makers seem to be pulling together.

But that is a long-term issue.

Further action?

Today's fall in the value of the euro is surprising for a different reason - because it suggests that financial markets think the ECB is preparing to take more dramatic steps to support the eurozone economy.

That is quite possible. But I did not hear much in Mario Draghi's press conference to suggest it is now a lot more likely than it was before.

He said the ECB was "technically ready" to take the interest rate on its deposit facility into negative territory - in other words, to charge banks to park their cash with the central bank.

Interesting, but he's said it before.

He also said the ECB had "decided to start consultations with other European institutions" on measures to promote non-bank lending to companies by trying to revive that side of the asset-backed securities market.

On guard

Many had been hoping the ECB would move in this direction. But it's been talked about for months.

And Draghi later stressed that the consultations had not got very far.

In general, he seemed to want to talk down expectations of more unconventional measures from the ECB, not ramp them up.

It's possible the euro fell, not because of any of these comments, but as a result of the ECB President's general insistence that the ECB remained "ready to act" if further bad economic news suggested it was warranted.

So, investors might think, this might be the first of several cuts in the various interest rates that the ECB controls.

In the wings

Maybe. But standing "ready to act" has been the ECB's watchword for a long time now. It was "ready to act" with the Outright Monetary Transactions for the crisis economies last summer - with miraculous consequences for European financial markets.

It's been a while since it did a lot of acting.

The refinancing rate that the ECB cut today has been at 0.75% since last July: Higher than the Federal Reserve's main policy rate, and the Bank of Japan's, and the Bank of England's. It was 1% until December 2011.

The European Central Bank has cut its key interest rate by one half of one percentage point, in 17 months. In those 17 months, inflation in the eurozone has fallen from 2.7% to 1.2%, and the eurozone economy, overall, has shrunk by around 0.75% - with much steeper falls in the crisis economies and at least another year of recession predicted for many countries.

Puzzle all you like about what the ECB might be about to do next. We shouldn't forget to be surprised that it has taken so long to do even this.