ECB's Coeure: Tiering To Be Considered If Rates Have To Be Cut - FT
June 17 2019 - 6:33AM
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The European Central Bank Governing Council would consider the
impact of negative interest rates and the tiering system, if it had
to conclude that cutting rates is the best option, ECB Executive
Board Member Benoit Coeure said. "All options come with costs and
benefits, and we have to ponder them very carefully," Coeure said
in an interview to the Financial Times, the text of which was
published on the ECB website on Monday.
"So, if the conclusion were that cutting rates is the best
option, then we would have to consider the impact of negative rates
on financial intermediation, especially for banks," the policymaker
said.
"We would have to consider whether a tiering system is needed,"
he said.
Currently, the prevailing view in the ECB's rate-setting body,
the Governing Council, is that the tiering system is not needed,
Coeure said, adding that "we also agree that it deserves further
reflection."
A tiered deposit rate can partly reduce the burden of the cost
banks pay on the cash they park at the ECB.
Coeure noted that policymakers were having concerns mostly about
the manufacturing sector and that the signals from the financial
markets were "quite alarming". The policymaker pointed out that
risks surrounding the euro area outlook has increased and in one of
the future policy sessions policymakers may be having a situation
where they have materialized.
The ECB does have policy tools such as a change in the forward
guidance, cutting rates and restarting quantitative easing. "The
question is which instrument, or combination of instruments, would
be best suited to the circumstances," Coeure said.
"That discussion only started in Vilnius; we need to take it
forward and reflect on the nature of the risks we're facing."
While leaving the interest rates unchanged on June 6, the ECB
extended its forward guidance to reflect its view that rates will
remain at the present level at least through the first half of
2020.
Eurozone interest rates were raised last in July 2011 by 25
basis points.
Dismissing the view that the ECB forward guidance is already
outdated as markets have started to price in a rate cut, Coeure
said, "The guidance is a way to filter the view of the Governing
Council on future economic developments and doesn't have to
coincide with market expectations."
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