A bit of padding out of the story in Austria’s financial newspaper Wirtschaftsblatt but BBG and the headline is an interesting comment.
Nowotny says;
“Banks that deposit money short term at the ECB are already getting zero percent on it. With a negative interest rate, which can’t be very high, maybe 10bp, they are not going to change their behaviour. The negative rate would be, in that case, a kind of insurance premium”
In my mind he’s spot on with that and it’s something we’ve been saying for a while. Not only is marginally cutting the rates by 10-15 bps piecemeal, it would have next to no effect on current attitudes for banks. The ECB knows it has got to get money flowing again but negative rates are not the way to go as Nowotny points out. It may get smaller banks moving but not the big boys. This brings another form of LTRO firmly into focus. Nowotny further makes the point;
There’ll be an ECB meeting next week, in which we discuss the relevant measures. I think one has to be realistic about what individual measures can achieve. For psychological reasons, I am sceptical about negative rates
One man’s view I know but it reinforces my view that we won’t see negative rates anytime soon.
