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In a sign that support for a rate cut may be growing, the head of the German central bank, which has typically been more reluctant to back rate cuts, said last week that a cut could be warranted if economic indicators worsen. Since his comments, they have. The ECB's key interest rate is what it charges to lend to banks. As a result, it influences a host of other rates that determine how much it costs businesses and consumers to borrow. Low rates in theory encourage borrowing to spend and invest, stimulating the economy. But rates are already low, and top ECB members have argued that the cheap financing is simply not reaching many companies. That is because troubled banks in some parts of the eurozone are reluctant to lend. Analysts say a rate cut might be mostly symbolic and do little to spur lending directly. It could, however, lower the euro's exchange rate, which would help exporters. Lower rates make interest-bearing investments in euros less attractive and reduce investor demand for the currency. The ECB has also been looking at unspecified new way to help the economy that go beyond interest rates. Analysts say the ECB might take steps to try to increase bank's willingness to make loans to small and medium size businesses, which provide most of the eurozone's jobs. Ideas that have been floated include loan guarantees from another European Union agency, or permitting banks to bundle loans to small businesses as securities and use them as collateral to get cash loans from the ECB.
[Associated
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