Yes, the ECB did cut its deposit rate by 10 bps, as widely expected. But the GC did much more. The ECB:
- Cut all three of its policy rates.
- Increased the size of its QE program
- Made its TLTRO program more attractive to banks
The GC also provided some “forward guidance” by saying that rates should “remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases.” That is, the ECB likely will not be hiking rates until well beyond March 2017.
What has the ECB accomplished with these measures? Bank lending, which contracted from 2011 to 2014, is growing again. At its current year-over-year growth rate, however, bank lending is hardly robust. The euro area economy is expanding, but at a sluggish rate, and the core rate of inflation in the Eurozone has shown no signs of moving higher. Have the ECB’s policies over the past few years helped to cushion the economy and prevented it from sliding back into yet another recession? Undoubtedly they have.
Read the complete commentary here: ecb-20160310