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Draghi Changes His Mind On Negative Rates‏

ByDanske Markets
Published 05/03/2013, 07:40 AM
Updated 05/14/2017, 06:45 AM

The ECB cut the refi rate by 25bp to 0.5% and kept the deposit rate unchanged at 0.0%. There was strong consensus towards an interest rate cut in the Governing Council, and towards a cut of only 25bp.

In addition, ECB President Mario Draghi announced that the ECB will continue with full allotment until mid-2014. Draghi underlined the importance of the full allotment announcement: ‘There can't be fears of lack of funding as an excuse for not lending’. There were no new measures targeting SMEs and Draghi said, ‘we are far from reaching any conclusion’. So, it seems an instrument for SMEs will not be announced any time soon. We still think that there will eventually be an announcement at one of the forthcoming Governing Council meetings.

Draghi doesn’t seem to be ruling out lower rates or negative rates. He said, ‘we stand ready to act if needed’ and that the Governing Council has an open mind with regard to negative rates. This is a shift from ‘the unintended consequences of a measure like that can be serious’. The fact that Draghi opened up for negative rates certainly increases the likelihood of further rate cuts.

Nevertheless, we believe that although the ECB might deliver more in terms of nonstandard measures, rate cuts have come to an end. However, the door is clearly not closed and if the economic situation fails to improve, Draghi has indicated that there is a bit more room for manoeuvre. The policy rates are likely to stay unchanged at these low levels until mid-2015 (and possibly longer).

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