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5 Jun 2014
The ECB today - negative territory – TDS
FXStreet (Barcelona) - Analysts at TD Securities noted that the ECB took the plunge into negative territory, cutting both the refi and deposit rates 10bps, which takes the depo rate into negative territory.
Key Quotes:
“The ECB also cut the marginal lending rate 35bps, but this not a significantly important interest rate, as it impacts the punitive lending rate for ELA funds and those finding themselves short of liquidity”.
“The ECB’s forecast changes were mixed, as inflation and GDP forecasts for 2014 had to be lowered given what we have seen so far in Q1, but in fact GDP forecasts for 2015 were increased from 1.6% to 1.7%, so they continue to like what they see in the economy. It is inflation that continues to disappoint, so they reduced the forecast for 2015 from 1.3% to 1.1%, while leaving 2016 unchanged at 1.4%, but with a more muted profile than before as the ECB no longer sees inflation returning to 1.7% by 2016Q4 as they did in the March forecast round”.
“But Draghi did make clear that outside of “technical” changes, they have reached the lower bound for interest rates. In stopping the sterilization of the SMP, that increases the excess liquidity in the system now by just over €160bn and helps depress Eonia and volatility in short-term rates. The extension of fixed-rate, full allotment tenders to the end of 2016 provides the ECB’s soft forward guidance of the period over which they see limited risks of rate hikes”.
Key Quotes:
“The ECB also cut the marginal lending rate 35bps, but this not a significantly important interest rate, as it impacts the punitive lending rate for ELA funds and those finding themselves short of liquidity”.
“The ECB’s forecast changes were mixed, as inflation and GDP forecasts for 2014 had to be lowered given what we have seen so far in Q1, but in fact GDP forecasts for 2015 were increased from 1.6% to 1.7%, so they continue to like what they see in the economy. It is inflation that continues to disappoint, so they reduced the forecast for 2015 from 1.3% to 1.1%, while leaving 2016 unchanged at 1.4%, but with a more muted profile than before as the ECB no longer sees inflation returning to 1.7% by 2016Q4 as they did in the March forecast round”.
“But Draghi did make clear that outside of “technical” changes, they have reached the lower bound for interest rates. In stopping the sterilization of the SMP, that increases the excess liquidity in the system now by just over €160bn and helps depress Eonia and volatility in short-term rates. The extension of fixed-rate, full allotment tenders to the end of 2016 provides the ECB’s soft forward guidance of the period over which they see limited risks of rate hikes”.