Forex Flash: ECB cut rates despite MRO rate being on track – Goldman Sachs

FXstreet.com (Barcelona) - The ECB has traditionally adopted a medium-term oriented approach to monetary policy that looks through higher frequency volatility in conjunctural indicators. According to the Economics Research Team at Goldman Sachs, “Given our analysis of the data, the ECB’s May MRO rate cut may come as a surprise, since the underlying assessment of the immediate outlook has not changed much since November.”

The rate cut can be justified on the grounds that downside risks to the anticipated recovery in the second half of 2013 were becoming material. However, it is also possible that the pattern of data releases within the quarter – in particular, the set of unexpectedly poor outturns in late February and early March – created a ‘window of opportunity’ to push policy easing through the institutional logjam that the Euro area’s complicated governance creates.