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Monday, March 14, 2016

European Central Bank Releases New Monetary Policy

European Central Bank Releases New Monetary Policy

 

President of The European Central Bank, Mario Draghi announced their monetary policy stance on March 10. It was revealed that all interest rates were cut and expanded their monthly bond purchases.

In an effort to avoid the possible danger of a Eurozone deflation the following basis points were decreased as follows according to a press release:

 

  1. The interest rate on the main refinancing operations of the Euro system will be decreased by 5 basis points to 0.00%, starting from the operation to be settled on 16 March 2016.
  2. The interest rate on the marginal lending facility will be decreased by 5 basis points to 0.25%, with effect from 16 March 2016.
  3. The interest rate on the deposit facility will be decreased by 10 basis points to -0.40%, with effect from 16 March 2016.
  4. The monthly purchases under the asset purchase programme will be expanded to €80 billion starting in April.
  5. Investment grade euro-denominated bonds issued by non-bank corporations established in the euro area will be included in the list of assets that are eligible for regular purchases.
  6. A new series of four targeted longer-term refinancing operations (TLTRO II), each with a maturity of four years, will be launched, starting in June 2016. Borrowing conditions in these operations can be as low as the interest rate on the deposit facility.

 

The main issue right now is that lower deposit rates can possibly diminish bank income, where they might have to restrict lending, which could then hurt the ECB’s monetary policy.

Executive Board member Benoit Coeure said in a speech on March 2 that while the ECB's priority is price stability, it's "well aware" of the risk that negative rates will hurt bank profitability, according to Bloomberg.

And now the media is in turmoil about how this decision will impact the euro. For more foreign currency news and updates on Central Banks, join our platinum passport for the latest. 

 

 

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Posted By Jacquelyn McMullen @ceifx at 04:32 PM
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