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30 Nov 2015
ECB to cut deposit rate by 20 bps - TDS
FXStreet (Guatemala) - Analysts at TD Securities explained that it is our view that they will cut the deposit rate by 20bps and both extend and increase asset purchases by around €10-15bn per month for at least an additional six months.
Key Quotes:
"We do not expect them to scrap the deposit rate threshold to bond purchases and to just cut the deposit rate by 20bps. Indeed, the ECB has the deposit rate threshold in place as their cost of funding is the deposit rate, so they would make a loss if they buy any bonds that yield less than this rate.
However, this would then imply that any attempts to minimise the cost to banks via the introduction of a two-tiered system could translate to a cost to the ECB, as their cost of funding is complicated by the presence of two ‘deposit rates’."
Key Quotes:
"We do not expect them to scrap the deposit rate threshold to bond purchases and to just cut the deposit rate by 20bps. Indeed, the ECB has the deposit rate threshold in place as their cost of funding is the deposit rate, so they would make a loss if they buy any bonds that yield less than this rate.
However, this would then imply that any attempts to minimise the cost to banks via the introduction of a two-tiered system could translate to a cost to the ECB, as their cost of funding is complicated by the presence of two ‘deposit rates’."