LONDON: The European Central Bank will not cut its deposit rate below zero in the next few months, even if some policymakers have talked openly about the possibility, says a firm majority of economists polled by Reuters.
Taken over the last three days, the survey also suggested there was little the ECB can do right now to stimulate growth in the recession-mired economies of the euro zone, with that burden falling on the region's governments.
Still, there was firm backing for the central bank's aim of breathing life into the asset-backed securities market as an effective way of raising funds for lending to small- and medium-sized companies.
Only six out of 57 analysts said it would cut its deposit rate below zero in the coming months - in other words, charging banks to store money overnight at the ECB and, in theory, encouraging them to lend instead.
The rest said it would refrain, even though ECB President Mario Draghi said last Thursday the ECB was "technically ready" to shift the deposit rate into negative territory. Other policymakers have since sought to dampen speculation, warning such a move could have major implications for banks' operations and for bond markets.
"The option will be left on the table but the bar is set high for action given the concern over unintended consequences. The ECB doesn't like gambles," said Ken Wattret, chief euro zone economist at BNP ParibasBSE 1.72 % in London.
However, 42 out of 51 economists said the ECB's plan to promote a functioning market for asset-backed securities could be an effective way of spurring lending to credit-starved smaller businesses.
Although the ECB has yet to flesh out plans to do this, economists said it would be a step in the right direction.
"Reviving market finance has been the biggest challenge for euro zone policymakers during this crisis," said Lena Komileva, chief economist at G+ Economics.
"But as the experience of the past five years shows it is an indispensable step for the health of governments, banks and the real economies sharing the euro."
Kristian Toedtmann, senior economist at DekaBank in Frankfurt, agreed: "Such a plan would address the problem of excessive risk aversion of banks.
Therefore, it could be more helpful than conventional or unconventional monetary easing." Of the remaining nine economists who disagreed, most said it might only have a small impact.
LIMITS TO AMBITION
Respondents in the poll were asked an open question on what else the ECB could do to get the euro zone economy growing. By far the most common response was "not much", because the most effective policies for stimulating economic growth are fiscal, not monetary.
"If the recovery does not materialise ... the next step (beyond refinancing and deposit rate cuts) is forward guidance, probably in the form of a price level target." said Anders Svendsen, chief analyst at Nordea.
Forward guidance, or sending clear signals about the path of future interest rate policy as practised by the U.S. Federal Reserve, was the next most common response from economists. That would mean a change from the ECB's stance of never pre-committing to a policy.
The poll showed the ECB would keep its main refinancing rate on hold at its new record low 0.5 percent through to at least midway through next year. Fourteen economists out of 65 forecast another interest rate cut to 0.25 percent.
indiatimes.com
Taken over the last three days, the survey also suggested there was little the ECB can do right now to stimulate growth in the recession-mired economies of the euro zone, with that burden falling on the region's governments.
Still, there was firm backing for the central bank's aim of breathing life into the asset-backed securities market as an effective way of raising funds for lending to small- and medium-sized companies.
Only six out of 57 analysts said it would cut its deposit rate below zero in the coming months - in other words, charging banks to store money overnight at the ECB and, in theory, encouraging them to lend instead.
The rest said it would refrain, even though ECB President Mario Draghi said last Thursday the ECB was "technically ready" to shift the deposit rate into negative territory. Other policymakers have since sought to dampen speculation, warning such a move could have major implications for banks' operations and for bond markets.
"The option will be left on the table but the bar is set high for action given the concern over unintended consequences. The ECB doesn't like gambles," said Ken Wattret, chief euro zone economist at BNP ParibasBSE 1.72 % in London.
However, 42 out of 51 economists said the ECB's plan to promote a functioning market for asset-backed securities could be an effective way of spurring lending to credit-starved smaller businesses.
Although the ECB has yet to flesh out plans to do this, economists said it would be a step in the right direction.
"Reviving market finance has been the biggest challenge for euro zone policymakers during this crisis," said Lena Komileva, chief economist at G+ Economics.
"But as the experience of the past five years shows it is an indispensable step for the health of governments, banks and the real economies sharing the euro."
Kristian Toedtmann, senior economist at DekaBank in Frankfurt, agreed: "Such a plan would address the problem of excessive risk aversion of banks.
Therefore, it could be more helpful than conventional or unconventional monetary easing." Of the remaining nine economists who disagreed, most said it might only have a small impact.
LIMITS TO AMBITION
Respondents in the poll were asked an open question on what else the ECB could do to get the euro zone economy growing. By far the most common response was "not much", because the most effective policies for stimulating economic growth are fiscal, not monetary.
"If the recovery does not materialise ... the next step (beyond refinancing and deposit rate cuts) is forward guidance, probably in the form of a price level target." said Anders Svendsen, chief analyst at Nordea.
Forward guidance, or sending clear signals about the path of future interest rate policy as practised by the U.S. Federal Reserve, was the next most common response from economists. That would mean a change from the ECB's stance of never pre-committing to a policy.
The poll showed the ECB would keep its main refinancing rate on hold at its new record low 0.5 percent through to at least midway through next year. Fourteen economists out of 65 forecast another interest rate cut to 0.25 percent.
indiatimes.com
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