5 Nov 2015
ECB QE, not deposit rates, hurting money market activity – Reuters
FXStreet (Mumbai) - Analysts at Reuters pointed out in their latest note; it’s not the negative interest rates in the Euro zone that impeded money-market activity, rather the overnight lending activity fell sharply after the ECB QE launch.
Key Quotes:
“While negative deposit rates were expected to hurt the supply side of interbank credit, the quantitative easing (QE) programme has hurt demand, as banks are awash with the money the ECB has pumped into the market via bond buying.”
“For now, the abundance of cash seems to be having a mild positive effect on the euro zone economy, with bank lending to businesses and consumers ticking up from a small base. Whether more QE will accelerate that recovery remains to be seen.”
“But there are heavy long-term risks attached to the ECB supplying most of the liquidity to the banking sector, rather than just being an occasional lender of last resort.”
“The longer the ECB's QE programme runs, the greater the risk that the banks and, implicitly, euro zone economies become addicted to its cash as other sources dry up. It also becomes harder for the ECB to exit its ultra-easy monetary policy.”
Key Quotes:
“While negative deposit rates were expected to hurt the supply side of interbank credit, the quantitative easing (QE) programme has hurt demand, as banks are awash with the money the ECB has pumped into the market via bond buying.”
“For now, the abundance of cash seems to be having a mild positive effect on the euro zone economy, with bank lending to businesses and consumers ticking up from a small base. Whether more QE will accelerate that recovery remains to be seen.”
“But there are heavy long-term risks attached to the ECB supplying most of the liquidity to the banking sector, rather than just being an occasional lender of last resort.”
“The longer the ECB's QE programme runs, the greater the risk that the banks and, implicitly, euro zone economies become addicted to its cash as other sources dry up. It also becomes harder for the ECB to exit its ultra-easy monetary policy.”