ECB Sources Say Bank is Preparing the Policy Bazooka

May 14, 2014 Share Print 0

The European Central Bank is preparing a package of policy options for its June meeting, including cuts in all its interest rates and targeted measures aimed at boosting lending to small- and mid-sized firms (SMEs).

Five people familiar with the measures being prepared detailed plans involving a potential rate cut, including the ECB’s deposit rate going negative for the first time, along with the targeted measures aimed at boosting lending to SMEs.

The package offers some stimulus for the euro zone economy but falls short of the large-scale effect the ECB could unleash with a major program of quantitative easing (QE) – money printing to buy assets. Such a QE plan is still some way off.
A June rate cut is “more or less a done deal”, said one of the five sources who spoke to Reuters on condition of anonymity.

A second source echoed that sentiment, and added: “This will be the first major central bank to move to a negative deposit rate. That would move the exchange rate.”
The two spoke of a cut of 10-20 basis points, probably in all three ECB rates. The main refinancing rate is currently at 0.25 percent.

Both sources expected the move to bring down the currency exchange rate but said the ECB had made no calculation of how much it was likely to fall by, and had no target for the euro.

via CNBC

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Alfonso Esparza

Senior Currency Analyst at Market Pulse

Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.