What to expect from Draghi’s bazooka

Mario Draghi hasn’t disappointed markets: they were expecting the ECB’s to cut its interest rate and to reduce deposit facility to -0.1pc., and the only measure that impacted them was the preparations related to outright purchases of asset-backed securities.

“This time EZ banks must use 100% of the money to give credit. And they are going to supervise it very carefully,” Self Bank’s Felipe López-Gálvez says. “We’ll see how markets digest the news in the coming weeks.”

Renta 4 analyst Natalia Aguirre agrees that the central bank will monitor closely how banks use the money.

“It’s a similar measure than the Bank of England’s Funding for Lending. Now markets need to see how this gets to the real economy and boosts credit lending,” she says.

Although the ECB is the first major central bank to adopt such a measure, two EU countries who don’t belong to the euro club ventured in the land of negative rates before: Sweden successfully did it in 2009 (-0.25%), and Denmark in 2012, although the latter resulted in a fiasco: banks made their clients pay for it.

After Mr Draghi’s announcement of the package, the euro plunged to a four-month low against the dollar, falling 0.7% to $1.3503 from above $1.36 before the central bank’s rate cuts. European stocks rose to a fresh six-and-a-half-year high. US S&P 500 hit an intraday record high for the 7th time in 8 sessions.

 

 

 

About the Author

Ana Fuentes
Columnist for El País and a contributor to SER (Sociedad Española de Radiodifusión), was the first editor-in-chief of The Corner. Currently based in Madrid, she has been a correspondent in New York, Beijing and Paris for several international media outlets such as Prisa Radio, Radio Netherlands or CNN en español. Ana holds a degree in Journalism from the Complutense University in Madrid and the Sorbonne University in Paris, and a Master's in Journalism from Spanish newspaper El País.

Be the first to comment on "What to expect from Draghi’s bazooka"

Leave a comment