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This article was published March 10, 2016 at 09:17 hours.
FRANKFURT – For Mario Draghi, the exams never end. In December, the board of the European Central Bank revised ( “recalibrated”, he says) the plan of monetary stimulus launched less than a year before. The markets, the intervention did not like, with the counterproductive effect that pushed in the opposite direction to that desired. In January, the conditions were changed, in particular owing to the collapse in oil prices, but the market turmoil and the crumbling of expectations of inflation in the ascent towards the objective of close to 2 percent. ECB President has convinced the council to a unanimous once, which in March would be the case of “reviewing” monetary policy.
That time has come. As always, when the ECB comes close to an important decision, in Germany it triggers a quote barrage of criticism. The savings banks, with all their connections with politics, were the harshest. But they have made their voices heard even private banks, Deutsche Bank head, and insurance giant Allianz, which has mobilized not only his chief economist, but also a board member, who argued that it would be time to start thinking to raise interest rates (!). From Basel, it resounded the echo of the Bank for International Settlements, to put the emphasis on the side effects of low interest rates.
The dispute concerns the measure most likely the ECB will adopt today, that is a new cut in interest rates on bank deposits with the Frankfurt Institute. Today at -0.30%, could be lowered by at least another 10 basis points. The most disadvantaged are precisely the German banks, the richest liquidity, leaving parked at the ECB. Through the counselor Benoit Coeuré, the ECB has leaked that means “mitigate” this effect: other central banks have already experienced one two-level scheme, in which a portion of the deposits is exempt from the “tax” or otherwise is subject to a less punitive. Which would pave the way for further cuts in interest rates on deposits. Another way would be to finance the banks, through normal operations, to zero, and no longer at 5 basis points as now. Or, you could go the route of another Tltro, refinance to banks aimed at granting to the real economy, since those already planned end in June.
The other change to the program stimulus should cover purchases of securities, the so-called quantitative easing, or Qe. The ECB may increase the monthly amount (currently € 60 billion), extend its service life (a less effective tool), or extend the range of purchased titles (although here the leeway are not large). It could also decide to buy stocks below the rate of deposits, the limit that is self-imposed so far, however, exposing to risk of loss.
A Dragons do not mind surprising and often fail to do so positively: a repeat of the December fiasco would ruinous.
But this time the markets are of less unbalanced positions and ready to “buy” the word of Frankfurt. In addition, the cards were kept covered on this occasion, so that the range of possible interventions ventilated by market observers is very wide.
The new staff forecasts that the ECB will disclose today show that inflation, instead of approaching objective, moves away. It is true that the ECB inflation target is not the time, but it speaks of “the medium term.” One wonders what the average period is long, since the 2% in the Eurozone is now a distant memory. Faced with these numbers, the most sensible part of the opposition to a new monetary stimulus should soften. Others, again, they will have a reason.
The question, rather, it is descending on the impact of monetary policy, which for too long operate in a vacuum of European policy.
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