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16.06.2014 15:08:44

ECB takes unprecedented action - QuickViews by Azad Zangana, European Economist and Gareth Isaac, Fund Manager, Fixed Income

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ECB takes unprecedented action

June 2014

 

 Quickview: ECB acts to head off deflation risk

   by Azad Zangana, European Economist

In summary:

         The policy measures announced today are helpful but do not significantly change the outlook for growth or inflation in the near future.

         We disagree with the move to take the deposit rate into negative territory as this raises the funding costs for banks, which will either increase charges on savers or increase interest rates on borrowers.

         Today's action shows that the ECB is aware of the rising risk of deflation, and is prepared to act in a targeted manner.

 

 Quickview: ECB takes deposit rates into negative territory

   by Gareth Isaac, Fund Manager, Fixed Income

In summary:

  • The main refinancing rate and the deposit rate were cut by 10 bps, taking the deposit rate into negative territory.
  • The sovereign bonds of the eurozone periphery - where credit is most acutely constrained - benefitted from the ECB�s announcement, with spreads tightening further in to German bunds.
  • Additional measures have been announced to encourage credit flows to the real economy via Targeted Long-Term Refinancing Operations (TLTROs).

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Schroders Switzerland

 

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