The European Central Bank may cut interest rates in March to stave off faltering markets. REUTERS/Kai Pfaffenbach
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With markets in turmoil and talk of further Chinese currency devaluation intensifying, expectations for U.S. rate hikes this year have all but evaporated, and central banks from Europe to Canada and Australia are preparing the ground for more easing.The People's Bank of China has been fighting to keep the yuan stable since Jan. 6, when its second sharp depreciation in six months sparked fears of more devaluation as growth in the world's second-biggest economy, already at a 25-year low, slows.Money markets now see the ECB's deposit rate sinking to minus 0.5 percent this year from minus 0.3 percent, while the BOJ said its policies provided room for more easing if needed.San Francisco Fed President John Williams meanwhile said the next rate rise may need to be delayed somewhat.One source with knowledge of the ECB's thinking acknowledged that its room for maneuver is limited: "We have a lot of tools still, but all are problematic one way or another so they are not the most effective".Central banks are nevertheless compelled to act by their unique mandates, which mostly set targets for inflation.
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