Summary for the 26th of July


At yesterday’s interest rate decision meeting, the ECB kept the interest rates unchanged at 0% for the refinancing rate and -0.4% on deposit rate, as expected by the financial markets. Mario Draghi had also indicated an announcement of a more expansive monetary policy on the next meeting in September. The reason the ECB was waiting with the rate cut was, according to Draghi, that the ECB would like to wait for the next economic projections, releasing in September, before taking any action. He also said that the decision to handle the current economic situation was complex and needed more preparation. This last statement indicated that a possible rate cut decision would be accompanied by new economic stimulus like another quantitative easing and changes in the ECB’s current liquidity system which could make banks pay less interest on their reserve in the Central Bank.

On the question about the ECB’s constraints of the capital key and the issuer limit, the ECB didn’t discuss about those topics at yesterday’s meeting. Many analysts believed the issuer limit constraint would be risen from 33% to 50%, and the capital key would be unchanged.

Worth noticing was the ECB’s wording of symmetry around the inflation target, which meant there would be no 2% cap on inflation, and the ECB could accept inflation deviations on both sides. Draghi also repeatedly said that the ECB didn’t like what they were seeing on the inflation front.

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