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19 May 2014
ECB could cut deposit rate - BBH
FXStreet (Guatemala) - Marc Chandler, Global Head of Currency Strategy at Brown Brothers Harriman explained the third interest rate that the ECB could cut, and the most controversial, is the deposit rate.
Key Quotes
"The third interest rate that the ECB could cut, and the most controversial, is the deposit rate. It currently stands at zero, and there is much talk that the ECB could set it at -25 bp."
"This would, in effect, tax banks for leaving excess reserves at the ECB. The tax would hit banks with the most surplus funds hardest."
"And these, of course, are mostly from core countries, excluding France. Banks from peripheral Europe and France may account for 20% of the funds at the ECB. These banks typically are net borrowers and so lower rates would also likely benefit them the most."
Key Quotes
"The third interest rate that the ECB could cut, and the most controversial, is the deposit rate. It currently stands at zero, and there is much talk that the ECB could set it at -25 bp."
"This would, in effect, tax banks for leaving excess reserves at the ECB. The tax would hit banks with the most surplus funds hardest."
"And these, of course, are mostly from core countries, excluding France. Banks from peripheral Europe and France may account for 20% of the funds at the ECB. These banks typically are net borrowers and so lower rates would also likely benefit them the most."