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ECB reverses course and widens rate corridor

Fri, Dec 19 2008, 14:58 GMT
by Danske Research Team

Danske Bank A/S


• ECB has re-widened the rate corridor to 200bp effective on 21 January, reversing its 9 October decision. The move is an attempt to discourage the use of ECB's deposit facility, revive bank lending, and help normalize money markets.

• The move is likely to lead to lower eonia rates and perhaps slightly lower euribor rates. But the effects are likely to be quite small. The widening of the rate corridor also puts pressure on the already hardpressed banking sector.

• We do not expect this initiative to revive bank lending, and are somewhat puzzled by ECB's obsession with the amount on deposit, i.e. ECB would get much better results from proceeding with plans for a clearing house for interbank loans.

Published on  Fri, Dec 19 2008, 15:02 GMT


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