Comments from Dutch ECB member Klaus Knot helped to boost the euro earlier, he spoke with MNI about the problems of cutting the ECB’s main refi rate without also cutting the deposit rate.
The problem is that the deposit rate is already at 0% so they would have to take it into negative territory. Negative deposit rates could be technically possible and might encourage banks to lend out money rather than hoard it but it’s a risky move that could have unintended consequences.
Knot also said:
“I’m signed up to the statement that we don’t want to jeopardize the recovery by allowing renewed liquidity tensions if we can avoid them with the instruments we have, but with the return of the interbank market I don’t see a convincing reason at the moment to contemplate a new LTRO, and it’s not on the table.”
The full MNI story (pdf)
