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ECB: 10BP cut in deposit rate in the air – BBH

FXStreet (Delhi) – Research Team at BBH, suggests that many are talking about a 10 bp cut in the ECB’s deposit rate, which currently stands at minus 20 bp.

Key Quotes

“However, some reports suggest that a larger cut may be contemplated. This would do three things. First, it would get ahead of the curve of expectations, and thereby have greater impact. Second, it would demonstrate greater resolve in boosting inflation or inflation expectations. Third, it would increase the range of instruments that can be bought under QE.”

“Currently, bonds with yields lower than the deposit rate cannot be bought. This means, for example, that German bonds from 2-4 years cannot be bought. Alternatively, consider the Netherlands. It sold a 3-year bond today with an average yield of -27 bp, a record low. It is not available for QE as the yield is too low.”

“The focus on the ECB means that the high frequency economic data from the euro area is having little influence. Today, French industrial production surprised to the upside after Germany disappointed last week. The consensus had called for French industrial output to fall 0.4% and manufacturing to fall 0.5% in September. In fact, industrial production was up 0.1%, and manufacturing output was flat.”

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