ECB ‘concerned’ at impact of negative rates on banks
Some at the ECB feel that banks’ suffering bottom lines are not enough reason to tweak policy (Boris Roessler)
Frankfurt am Main (AFP) – European Central Bank policymakers worry that long-term low interest rates are harming eurozone lenders, minutes of a March meeting released Thursday showed, stoking speculation some relief could be on the way for the financial sector.
“Concerns were voiced that over time the effects of persistently low rates could depress banks’ interest margins and profitability,” the account read.
That fear did not prevent some governing council members from arguing to push back the possible date of a first rate hike to March 2020.
One element of its years-long stimulus to the 19-nation eurozone, the central bank’s main refinancing rate has been pinned at zero percent for three years.
Meanwhile its negative deposit rate of -0.4 percent is meant to encourage institutions to lend out cash to firms and households rather than park it at the ECB.
“Up to now, the overwhelming ‘official’ view of the ECB has always been that negative interest rates have been good for the economy, with hardly any negative effects on banks,” ING bank economist Carsten Brzeski commented.
“The latter part of this view has now started to shift.”
Last week, ECB President Mario Draghi said that “we need to reflect on possible measures that can preserve the favourable implications of negative rates for the economy, while mitigating the side effects, if any.”
Observers have in recent weeks been speculating on whether the ECB could soon introduce a so-called “tiering” system, that would mean only part of banks’ deposits in Frankfurt were charged the costliest negative rate.
But top officials like ECB chief economist Peter Praet have insisted there must be a “monetary policy case” for tiering beyond concern for banks’ bottom lines.
“I am not yet convinced” the case is there, board member Sabine Lautenschlaeger told AFP this week.
Raising rates still appears far off in the future for the ECB, loath to brake the economy as inflation remains well short of its goal of just below 2.0 percent.
The central bank’s own forecasts call for price growth to pick up to just 1.6 percent by 2021, a call which “might be considered optimistic”, the account of the March meeting noted.
Disclaimer: Validity of the above story is for 7 Days from original date of publishing. Source: AFP.