Negative rates and printing €20bn monthly

  • The ECB cut the deposit rate by 10 basis points
  • EURUSD traded higher initially and then traded relatively flat through the remainder of the session
  • Governing Council decided to restart their Quantitative Easing programme from November the first (€20bn per month)

The Governing Council met today to inform the market as to their decision over monetary policy.

They decided to lower the deposit rate to -0.5% (from -0.4%).

This comes just as the ECB begin Targeted Long Term Refinancing Operations again to help support the Eurozone Banks (for the third time).

Draghi also said that, ‘in order to support the bank-based transmission of monetary policy the Governing Council decided to introduce a two-tier system for reserve remuneration in which part of banks’ holdings of excess liquidity will be exempt from the negative deposit facility rate.

He added, ‘The Governing Council reiterated the need for a highly accommodative stance of monetary policy for a prolonged period of time and continues to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner, in line with its commitment to symmetry.

Speaking on fiscal matters, Draghi mentioned that, ‘in countries where public debt is high, governments need to pursue prudent policies that will create the conditions for automatic stabilisers to operate freely. All countries should reinforce their efforts to achieve a more growth-friendly composition of public finances.

The market may take this as being a negative, in that Draghi could be admitting the ECB’s policies have failed to stimulate growth.

Below is a chart of EURUSD.

The market traded lower just before the announcement and ended higher after the presser.

You can read the official statement here.