Draghi needs to perform juggling act in face of economic uncertainty
The ECB chief is expected to widen negative rates, but negative rates have dented bank profitability and may dampen stockmarket sentiment and business confidence
London
THE markets expect the European Central Bank (ECB) to widen negative interest rates, currently at -0.3 per cent. The bet is for at least a further -0.1 percentage point, while the ECB could accelerate quantitative easing (QE) by raising the monthly purchases of European bonds from 60 billion euros (S$91 billion) to 70 billion euros.
But ECB president Mario Draghi has a problem. Negative interest rates have dented bank profitability and banks such as Deutsche Bank are already under pressure. Moreover, negative rates illustrate that the eurozone remains depressed and if the current stockmarket rally peters out, business confidence will be dampened.
The ECB board will meet in Frankfurt on Thursday but stock and bond market prices are already reflecting expectations of lower negative rates and an increase in QE. A poll of 18 euro money market traders by Reuters indicated that all believe the bank will cut its deposit rate further into negative territory. It also showed that economists thought an increase in its …
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