Renewed ECB easing places further pressure on banks

Subject

ECB easing.

Significance

The ECB’s Governing Council announced on September 12 another round of ultra-loose monetary policies. 'As long as necessary' has replaced 'whatever it takes' in departing ECB President Mario Draghi's speech. The lowering of the deposit facility rate for commercial banks from minus 0.40% to minus 0.50% will provide them with additional liquidity at favourable conditions. The ECB has also enhanced its forward guidance by linking future interest rate moves to the inflation outlook. Euro-area economic activity is deteriorating and inflation is far below the ECB’s target.

Impacts

• Fear of losing customers is stopping banks charging negative rates on household deposits, but the debate about this will grow.
• However, an outright ban, as advocated by Germany’s Federal Financial Supervisory Authority, seems unlikely despite the risk of withdrawals.
• The ECB’s Governing Council urges that fiscal policy should be the main stimulus, but countries show no sign of coordinating on a package.