Investors appear to have largely ruled out the possibility of further interest rate cuts by the ECB, according to fresh news that ECB policymakers are uncomfortable with this, and they unanimously agreed that they want to emphasize that rate cuts remain an option.
The media, citing informed ECB officials, said that at last Thursday’s monetary policy meeting, the ECB’s governing council discussed market pricing that showed that the market expected the ECB to make further negative rate cuts almost impossible and agreed that the possibility of a rate cut needed to be emphasized. Officials are not currently considering lower borrowing costs in the short term, but one official said investors should not rule out the possibility of a rate cut when economic uncertainty remains high and the euro exchange rate is still relatively strong.
According to the media, the ECB official believes that the market has underestimated the possibility of a rate cut. It mentioned that it was because of the above discussion that ECB President Lagarde specifically focused a speech at the conference after last Thursday’s meeting on the wide range of options available to the ECB. At that Time, she said that the ECB was prepared to adjust “all” of its instruments if needed.
After last week’s meeting, the ECB announced that it would leave interest rates and the size and timeframe of QE bond purchases unchanged, with the deposit facility rate remaining at -0.5% of its policy rate. The ECB is one of the four major central banks that are still implementing negative interest rates, the other three are the Bank of Japan, the Swiss central bank and the Danish central bank.
For Lagarde last week reiterated that the ECB may adjust all tools in order to ensure that Inflation rebound, some market participants interpreted that she was warning that if investors do not stop pushing up the euro action, the ECB may even cut interest rates.
It is worth mentioning that in countries like Germany and the Netherlands, which have traditionally tended to save, negative interest rate policy is not popular, and the Dutch central bank governor and ECB Management Board member Klaas Knot also mentioned in an interview on Wednesday that the deposit rate is one of the tools that can be adjusted if needed.
Knot said, I always say that we have studied the effective zero interest rate floor, but we have nothing yet, “there is still room for a rate cut”.
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