ECB: Rate cuts to be the preferred instrument of easing - Rabobank


According to analysts at Rabobank, in recent weeks, the ECB has signalled the potential of renewed easing and they believe rate cuts are likely to be the preferred instrument.

Key Quotes

“Further rate cuts will probably be accompanied by some form of a tiered deposit rate scheme to ensure that these cuts have the desired effect on the real economy.”

“We believe a substantial amount of excess reserves needs to be exempted from the ECB’s negative deposit rate in order to fully mitigate the additional costs of rate cuts on the banking sector.”

“Nonetheless, looking at evidence from Japan, we don’t see any reason to assume that such a large decline in reserves subject to the negative policy rate would cause the pass-through of rates to break down.”

“However, the ECB will have to look carefully at the exact design of any tiered system, both in conjunction with their other policy tools and in terms of distributional effects on the various types of banks in the Eurozone.”

 

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