16 Nov 2015
ECB: pushing against a string - Rabobank
FXStreet (Guatemala) - Analysts at Rabobank are looking at the rationale (“why, and why now?”) behind a further cut in the ECB deposit rate and how this may affect money and currency markets.
Key Quotes:
"Whilst we argue that a deposit rate cut is probably quite effective, much (if not too much already) has been priced in, suggesting that the ECB will face some challenges in December."
"We also remain of the opinion that such a policy option exposes the ECB to ‘retaliation’ by other central banks and we note that despite the huge amount of policy measures since 2014 –TLTRO’s, the asset purchase program, and previous deposit rate cuts into negative territory– financial fragmentation in the Eurozone banking system has not disappeared."
"This highlights the risk that further policy measures will simply be more of ‘pushing against a string.’"
Key Quotes:
"Whilst we argue that a deposit rate cut is probably quite effective, much (if not too much already) has been priced in, suggesting that the ECB will face some challenges in December."
"We also remain of the opinion that such a policy option exposes the ECB to ‘retaliation’ by other central banks and we note that despite the huge amount of policy measures since 2014 –TLTRO’s, the asset purchase program, and previous deposit rate cuts into negative territory– financial fragmentation in the Eurozone banking system has not disappeared."
"This highlights the risk that further policy measures will simply be more of ‘pushing against a string.’"