ECB expectations and implications - Deutsche Bank

FXStreet (Guatemala) - Analysts at Deutsche Bank explained that the ECB is widely expected to cut rates deeper into negative territory this week.

Key Quotes:

"The goal is to offset external risks to inflation – and to growth – by reversing euro strength and boosting domestic demand.

Negative rates raise inflation primarily via a weaker euro but also by supporting domestic demand

Deeper negative rates equate to more easing but are costly for banks.

The cost for banks can be lowered, e.g., exempt part of excess reserves from being charged the deposit rate.

ECB can achieve stimulus while limiting the cost to banks

Negative rates are...

... easy to reverse

... likely to help credit growth now that bank

lending channel has healed

... less effective than QE in lowering long-

term yields – but these are already low

... no longer taboo. Rates are even more

negative in several European countries (Denmark, Sweden, Switzerland)."