The region's economic health continues to deteriorate, but the keepers of monetary policy in Europe are showing no inclination to press down harder on the easing pedal.
Both the European Central Bank and the Bank of England are expected to stand pat when policy makers of both institutions gather Wednesday and Thursday for their regular monthly rate-setting meetings. The Bank of England may be close to running out of ammunition, but the ECB could do more if it wanted to, economists and bank watchers say.
"The Bank of England already has monetary policy set at very stimulative settings," said Avery Shenfeld, chief economist with CIBC World Markets Inc. Its benchmark interest rate is at a historic low of 0.5 per cent.
If the bank does anything, it might boost the size of its asset purchases. Three of the nine members of the policy committee, including soon-to-retire governor Mervyn King, pushed for such an increase in quantitative easing – to £400-billion from the existing target of £375-billion – at the February meeting and again last month, only to be rebuffed.
Analysts doubt policy makers will pursue any further unconventional policies before Mark Carney takes the helm July 1. And even then, his options could be limited. "They've pretty much got their foot fully on the gas, and I'm not sure there's any more to do," Mr. Shenfeld said.
The ECB, by contrast, still has room for more monetary easing. The Organization for Economic Co-operation and Development said in a report last week that "there is a strong case to ease monetary policy further."
The state of the economy "would certainly justify that. But whether they bother is questionable," Mr. Shenfeld said.
"We're leaning to no move [on rates]," said Sal Guatieri, senior economist at BMO Nesbitt Burns Inc. "But it certainly has plenty of reason to [cut]." The euro zone is in recession and inflation slid to an annual rate of 1.8 per cent in February, below the ECB target of 2 per cent and the average since 1991 of 2.27.
"It really comes down to how much good a rate cut would do when the euro zone is under so much stress," Mr. Guatieri said. "Overnight rates are already pretty low."
The potential damage from the fiasco in Cyprus is unlikely to factor into the decision. "In terms of monetary policy, the weight of Cyprus in euro zone GDP and inflation is trivial," Mr. Shenfeld said.
If anything, the renewed euro zone fears triggered by Cyprus's banking crisis makes it easier for the ECB to hold the line on rates. The main benefit of a cut would be a weaker currency. But worries over Cyprus have already accomplished that.