European Central Bank

European Central Bank board member Benoit Coeure sees no reason for creating a tiered deposit rate that exempts banks form part of an ECB charge on their idle cash, he said in an interview published on Tuesday.

 

Coeure argued that lenders should focus on their costs rather than blame the ECB’s negative rate for their low profits and hinted that the upcoming round of multi-year loans to banks should not be as generous as the previous edition.

 

“At the current juncture, I do not see the monetary policy argument for tiering,” Coeure told German daily Frankfurter Allgemeine Zeitung. “However, we must keep a close eye on developments.”

 

He was joining other members of the ECB’s Governing Council in expressing reservations about a tiered system, which would relieve banks from paying a 0.40 per cent annual charge on a portion of their excess reserves.

 

Such a set-up, already introduced in countries including Japan and Switzerland, would make it easier for the ECB to keep its deposit rate at record lows for longer or even cut it, by easing the burden on banks.

 

The ECB has said it won’t raise rates at least until the end of the year but financial markets don’t price in a rate hike until 2021.

 

In his interview, Coeure distanced himself from those expectations.

 

“We are not tied to such market expectations; they are an important input, but we are not led by them,” Coeure said, adding they reflected “an assessment of the downside risks which is different to that of the Governing Council”.

 

Coeure added that the terms of the ECB’s new Targeted Long-Term Financing Operations, likely to be unveiled in June, would reflect the improved lending conditions compared to when the previous round of cheap loans was introduced in 2016.

 

Finally, he stuck to ECB expectations for a rebound in growth, albeit with a degree of uncertainty.

 

“We expect growth to return in the second half of the year. There are no grounds for overly gloomy thoughts,” he said. “On the other hand, it is very uncertain how long and how strong the downturn will be.”

board member Benoit Coeure sees no reason for creating a tiered deposit rate that exempts banks form part of an ECB charge on their idle cash, he said in an interview published on Tuesday.

 

Coeure argued that lenders should focus on their costs rather than blame the ECB’s negative rate for their low profits and hinted that the upcoming round of multi-year loans to banks should not be as generous as the previous edition.

 

“At the current juncture, I do not see the monetary policy argument for tiering,” Coeure told German daily Frankfurter Allgemeine Zeitung. “However, we must keep a close eye on developments.”

 

He was joining other members of the ECB’s Governing Council in expressing reservations about a tiered system, which would relieve banks from paying a 0.40 per cent annual charge on a portion of their excess reserves.

 

Such a set-up, already introduced in countries including Japan and Switzerland, would make it easier for the ECB to keep its deposit rate at record lows for longer or even cut it, by easing the burden on banks.

 

The ECB has said it won’t raise rates at least until the end of the year but financial markets don’t price in a rate hike until 2021.

 

In his interview, Coeure distanced himself from those expectations.

 

“We are not tied to such market expectations; they are an important input, but we are not led by them,” Coeure said, adding they reflected “an assessment of the downside risks which is different to that of the Governing Council”.

 

Coeure added that the terms of the ECB’s new Targeted Long-Term Financing Operations, likely to be unveiled in June, would reflect the improved lending conditions compared to when the previous round of cheap loans was introduced in 2016.

 

Finally, he stuck to ECB expectations for a rebound in growth, albeit with a degree of uncertainty.

 

“We expect growth to return in the second half of the year. There are no grounds for overly gloomy thoughts,” he said. “On the other hand, it is very uncertain how long and how strong the downturn will be.”

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