The minutes of the March meeting of the European Central Bank (ECB) Governing Council showed that policymakers discussed the possibility of a sharper interest rate cut in March, though they opted for a smaller one as they saw the scope for further reductions if the inflation outlook worsens.

After the meeting, the ECB announced a series of stimulus measures that included a reduction of its main three interest rates and a new long-term refinancing operation.

The minutes also show that the council was of the view that negative interest rates were ‘broadly’ beneficial for banks in the eurozone. The ECB did, however, express caution over cutting the deposit facility rate further, as it “could unduly increase the pressure on banks’ profitability” and impact the sector’s level of stability.

In the meantime, the minutes of the Federal Reserve (Fed) March meeting revealed that policymakers remain concerned about low inflation and lingering global economic problems. Policymakers also debated whether an interest rate hike would be needed in April with a consensus emerging that risks from the global economic slowdown warranted a cautious approach.

At the end of the meeting, the Fed signalled that it expected to raise rates twice in 2016 but the timing of the hikes was still very uncertain. A number officials argued against an April hike, on the basis that this would signal a sense of urgency which they did not think appropriate. On the other hand, some other participants indicated a rate hike might well be warranted should the economic data show that the recovery is proceeding at a brisk pace.

Finally, International Monetary Fund (IMF) director Christine Lagarde said last Tuesday that the global recovery is continuing but it remains too slow and fragile. She also said that the recovery is beset by an array of political risks, from terrorism to the UK’s potential departure from the European Union, at a time when growth is at best mediocre, and that the risks to its sustainability are rising. The risk of becoming trapped in the so-called ‘new mediocre’ has increased, the IMF chief added.

This report was compiled by Bank of Valletta plc for general information purposes only.