29 Apr 2014
Pressing issues for ECB - BBH
FXStreet (Guatemala) - Marc Chandler, Global Head of Currency Strategy at Brown Brothers Harriman explained that the more pressing issue is the rise in EONIA through the repo rate and the continued decline in excess liquidity in the Eurosystem.
Key Quotes:
"This, we have suggested, is one of the factors lifting the euro, which in turn exposes the downside risks to the economy and prices."
"This combination of higher overnight rates and strong currency likely meets the Draghi's definition of an "unwarranted" tightening of monetary conditions and could elicit a policy response. The policy response to this problem is not QE, but lower rates."
"One measure, that we still do not see many talking about, is a cut in the ECB's lending rate that sits at 75 bp and serves as the upper end of the rate corridor. Most have focused on a cut to the floor of the corridor, which is the zero deposit rate. We remain concerned about the disruptive effect of a negative deposit rate on money market and large depositors, which include government agencies managing their budgets, for example."
Key Quotes:
"This, we have suggested, is one of the factors lifting the euro, which in turn exposes the downside risks to the economy and prices."
"This combination of higher overnight rates and strong currency likely meets the Draghi's definition of an "unwarranted" tightening of monetary conditions and could elicit a policy response. The policy response to this problem is not QE, but lower rates."
"One measure, that we still do not see many talking about, is a cut in the ECB's lending rate that sits at 75 bp and serves as the upper end of the rate corridor. Most have focused on a cut to the floor of the corridor, which is the zero deposit rate. We remain concerned about the disruptive effect of a negative deposit rate on money market and large depositors, which include government agencies managing their budgets, for example."