Today, the ECB has actually delivered almost everything that investors wanted. As expected, the deposit rate has been lowered to minus 0.5%. This measure is accompanied by an allowance for which there is no negative interest. The purpose of this staggering is to keep the banks‘ burden from the negative deposit interest rate within limits. This differentiation should make life easier for German, French and Dutch banks in particular. Together, they account for almost 70% of the ECB’s surplus reserves. However, the ECB must ensure that money market rates do not move upwards as a result of this graduated system.
Bond purchases are to be resumed on 1 November, but this time without a fixed end date. The programme is to be implemented almost until it raises key interest rates again. Since this can take a very long time, this is a clear signal to the markets that the ECB intends to act very expansively until further notice.
The announced purchase volume, on the other hand, is lower than many had hoped. The limits applicable to individual issues and issuers have not been changed. A monthly volume of EUR 20 billion, however, gives the ECB the opportunity to resume net purchases for at least twelve months, even with the current limits. Since the ECB assumes that it will not reach an inflation rate of 1.5% until 2021, an end to bond purchases in the next few years is not foreseeable.
ECB boss Draghi himself sees the limits of monetary policy reached. At the press conference, he stressed that it was now time for fiscal policy to play a more active role, especially in those countries that had the leeway to do so. This appeal is likely to be directed mainly at Germany.
There was a short range of joy on the financial markets, but then a new realism quickly prevailed and the profits were relinquished. I share this view. The measures adopted today should not contribute to a rise in inflation. Growth momentum should not benefit from this either. Only the call for more fiscal stimulus could have a positive impact on growth.
Taken together, I believe that the ECB has largely reached the end of its possibilities. The plea for fiscal stimulation is a clear sign of this. All this is happening in times that are not really crisis-prone. It is time for a thorough review of the monetary policy strategy. This does not necessarily mean deviating from the very expansive course. But the question of timing and dosage should urgently be clarified at an objective level.