European Central Bank decided that the interest rate on the main operations, marginal lending facility and the deposit facility will remain unchanged at 0.00 percent, 0.25 percent and -0.40 percent respectively - Photo by ECB Office

JAKARTA (TheInsiderStories) – United States (US) President Donald Trump angry with the European Central Bank (ECB) planned to cut the interest rate and rated that was unfairly act for his country. As we know, on Tuesday (06/18), President ECB Mario Draghi stated that rate cut as primary tool to give a new stimulus to the Eurozone.

“Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the US Dollar, making it unfairly easier for them to compete against the USA,” Trump wrote in a tweet. He added, “They have been getting away with this for years, along with China and others.”

Reopening a spat over transatlantic trade with the European Union (EU) that has repeatedly flared up during Trump’ presidency. Trump’ comments come after Draghi used one of his last major speeches before stepping down as ECB president to say the central bank could act to loosen monetary policy – cutting interest rates or revamping its quantitative easing bond-buying program – to stimulate the eurozone economy.

Economic growth in the single currency area has struggled to generate momentum in the past 18 months, while inflation across the bloc has stayed below the ECB’ target level of 2 percent. Growth in key member states, including Germany, Europe’ largest economy, has come close to stalling, while Italy slid into recession.

“In the absence of improvement, such that the sustained return of inflation to our aim is threatened, the additional stimulus will be required,” Draghi speak at the ECB’ annual meeting in Sintra, Portugal on Tuesday.

The Euro weakened across the board on foreign exchanges straight after the speech, dropping by 0.3 percent against the dollar to trade a two-week low of US$1.1182 on Tuesday.

A weaker currency can help businesses to sell goods at more competitive prices to overseas buyers. Trump has long complained that the US buys more from the EU firms that are sold the other way, similar to his criticism of China.

With just four months of his eight-year term left, the slowdown in the eurozone may threaten to unpick Draghi’ legacy. The Italian is widely seen as having saved the euro after a promise in 2012 to do “whatever it takes” during the sovereign debt crisis.

Draghi’ latest intervention will likely help to reassure markets that the ECB is ready and willing to act despite his forthcoming departure while laying down the gauntlet to his successor to maintain lower borrowing costs to support the eurozone economy.

However, the ECB faces challenges given its limited firepower, with interest rates at record lows of zero and -0.4 percent for bank deposits. The central bank could cut interest rates deeper into negative territory, or buy more government bonds than previously allowed under its Quantitative Easing program.

Trump’s and Draghi’ comments come at the start of the two-day Federal Open Market Committee meeting in the US. Policymakers at the US central bank are widely expected to keep the federal funds rates (FFR) steady while paving the way for a cut in July.

Trump has frequently criticized the Fed for hurting economic growth in the US. As recently as Friday, he claimed during an interview with ABC News that the stock market would be “10,000 points higher” if policymakers had not raised interest rates four times in 2018.

Most recently, the Federal Reserves’ chairman Jerome Powell said that the central bank was prepared to respond to economic impacts from muted inflation and the US – China trade war.

“We do not know how or when these issues will be resolved. We are closely monitoring the implications of these developments for the US economic outlook and we will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2 percent objective,” he said at the beginning of June.

Meanwhile, Bank Indonesia (BI) sees room to cut interest rates, according to Governor Perry Warjiyo, raising the prospect of the domestic economy easing monetary policy in the face of growing risks to growth. He stated, that the global financial market condition is still full of uncertainties, whether related to the trade war, Brexit, geopolitics, and other issues, which can lead to capital flows reversal and bring risks in financing the current-account deficit.”

Central banks around the globe have been shifting to a looser monetary policy position to counter the slowing demand with India, Australia, New Zealand, the Philippines, and Malaysia all cutting rates in recent weeks.

On Thursday, BI is scheduled to make a decision its next interest rate announcement . If it lowers the rate, it would be the first cut since September 2017 and mark the beginning of an unwinding of a tightening cycle that began in May last year and delivered a total of 175 basis points of hikes.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com