The European Central Bank moved decreased the interest rates to 0.15% and the deposit rate for banks to -0.1%.
The markets cheered the bold move – but I suspect the real effect will be negligible or even negative.
There was no hint to a European Quantitative Easing.
The same move had been tried in Denmark and Sweden. In Sweden did not have any effect and in Denmark it did succeed in lowering the value of the currency (krone), but also hit the bank profits.
In effect it will not even push the banks to lend, as at -0.1% they are still not compensated for the risk.
How the banks will fare it will have to be seen as there are quite a few variables: the banks are hit by the -0.1% and the money market trading, but also save on the 3 years trillions Euro lent by the ECB at the hight of the European Crisis.
All is all, more a psychological effect, than anything of merit…it is like the ECB saying, we have still options!
In reality the ECB has exhausted his card and the hand is squarely in the hand of the politicians (as, even a European Quantitative Easing, it would a political play North Europe vs South Europe – plus the quite interesting question of which bond -Italian, German, Spanish, Greek?).
Hopefully Europe does not end up like Japan with lost decades of growth.
What all this means…a more likely last hurrah of the market, with a burnout in the downside out of nowhere
investorpolitico 