ECB: We have doubts about effectiveness of sharp rate cut – Rabobank
By FXStreet The Financial Markets Research Team at Rabobank, has doubts about the effectiveness of a significant rate deposit cut from the European Central Bank (ECB) and consider other options.
Key Quotes:
“In the 21 Jan. meeting, President Draghi said that the economic outlook and inflation dynamics had further deteriorated, requiring the ECB to “review and reconsider” its monetary policy stance in early March. Since those comments, market turmoil has only intensified, pushing the ECB’s broad nominal exchange rate index to its highest level in more than a year whilst the 5y5y inflation break-even forward has slipped below 1.5% (a key level that triggered the PSPP announcement in Jan. 2015, we argue). A 10bp cut in the depo rate is now fully priced in whilst the market sees a 60% probability of a 20bp or deeper cut.”
“We have doubts about the effectiveness of too sharp a deposit rate cut (also bearing in mind the recent BoJ’s experience) and feel more sympathy with an extension of liquidity provision and an expansion of QE. The latter, however, is likely to require a change in the parameters governing the PSPP.”
“Bearing in mind the recent turmoil in banking stocks, an extension of the TLTRO scheme beyond …read more
Source:: FX Street
