Market Still Grappling with Intricacy of ECB’s Plan

Mario Draghi’s latest stimulus tool contains a hidden message: If you think interest rates will rise before 2018, take the money now.

The European Central Bank president has offered lenders a fresh round of cash for as long as four years to keep them afloat and make them support an economic recovery by encouraging lending. He’s also inviting bets on when the ECB will scale back its ultra-loose monetary policy — the more a bank expects borrowing costs will rise over the term, the more attractive the loan looks.

Four weeks after the ECB unveiled an unprecedented plan for boosting the euro area’s floundering revival, economists and investors are still grappling with its intricacy. While Draghi is trying to reassure investors that the ECB will keep policy loose for longer than the U.S. Federal Reserve and Bank of England, the link between the size of stimulus now and the prospect of higher rates later is a reminder that cheap money won’t be around forever.

Bloomberg

 

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