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However, a rate cut might offer some help in other ways. It might lower the euro's exchange rate against other currencies. That could help exporters, whose goods become cheaper abroad. And a cut would also lower the cost of ECB emergency credit to the hardest-hit banks. That would take some pressure off their finances so that they could lend more. The ECB has stayed away from a key tool to help stimulate an economy that is already used by the Fed, Bank of Japan, and Bank of England. Quantitative easing, or the purchase of securities with newly created money, pushes down longer-term interest rates and aims to increase the overall supply of money in the economy. Draghi has said such a step would be difficult for the multinational ECB, since each eurozone member country's debt market is different. Analysts say the ECB needs to find another way to spur small-business lending. One way would be to encourage banks to bundle small business loans as securities and then to use them as collateral to obtain credit from the ECB. It's not clear whether anything along those lines will be announced Thursday. Analyst Carsten Brzeski at ING thinks say the ECB may hold off cutting rates so it can first come up with ways to make sure lower borrowing costs are actually passed on. Draghi has indicated the bank is studying possible steps, and mentioned possible involvement by governments and outside agencies such as the European Investment Bank. The EIB already offers reduced interest loans to midsize companies through local banks. Without such additional measures, a cut "would quickly go up in smoke and could even be regarded as an act of despair," Brzeski said. "It is hard to believe that the ECB would cut rates first and come up with a broader SME funding scheme later."
[Associated
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