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Why we must care about the euro's interest rate

Who cares about the European Central Bank's interest rate decision? It doesn't matter to us, does it? In truth we should care because it really does matter, a lot.

It matters because as the only UK region with a land border next to a European country, we're hugely affected by any change to the monetary system of our biggest trading partner and in particular to the euro/sterling exchange rate.

Take yesterday's cut in its interest rate to 0.5% from 0.75%.

News of the move immediately saw the euro tank, losing value against sterling faster than a new car being driven off a forecourt.

That's because those shadowy investors look on the cut as a sign the European economy is in a worse state than first thought. You don't need me to tell you the difficult position that puts our exporters in when trying to compete in Europe: a weaker euro means our goods and services seem more expensive.

There are upsides in that imports are cheaper and our pound goes a bit longer when we go to Europe on our holidays, but as exports are one of the sources expected to help drive the Northern Ireland economy's recovery then we should really be at our happiest with weak sterling.

On the upside, the cut in interest rates in Europe is being implemented to try and boost the economy there by offering borrowers the chance to borrow money at lower rates.

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If that works then all well and good for us and our exporters to the Republic and other parts of Europe but will the banks there pass on the lower rates to business?

Time will tell but for now we need to keep a close eye on the goings-on in Europe because it's closer to our economic prosperity than we think.


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