By Francesco Canepa
FRANKFURT (Reuters) – The European Central does not currently have any plan to trim its deposit rate further, executive board member Benoit Coeure said on Thursday, although he added that a cut remained a possibility “in principle”.
The ECB’s negative deposit rate – effectively a charge on banks for hoarding cash – has been criticised by banks and investors, particularly in Germany, for squeezing their profits and distorting financial markets.
While maintaining that banks had so far largely benefited from the policy and markets continued to work smoothly, Coeure said no further cut was on the cards for the moment, despite zero inflation in the euro zone.
“It is in principle possible to cut this rate further, but there is currently no plan to do so,” Coeure told Japanese newspaper The Yomiuri Shimbun.
The ECB deposit rate is currently -0.40 percent.
ECB President Mario Draghi sent financial markets into a tailspin in March when he said he did not envisage any further rate cut, confounding investors’ expectations at the time.
The ECB has since repeated its guidance that rates will remain at present or lower levels for a long time, although officials have talked down the chances of imminent moves after the March rate cut and stimulus package.
Yet savers, banks and some German policy makers have grown increasingly vocal in their criticism of the central bank’s ultra-low rates and money printing.
Finance Minister Wolfgang Schaeuble even argued they were partly to blame for the rise of the right-wing anti-immigration party, Alternative for Germany (AfD).
Minutes of the ECB’s April policy meeting showed rate setters agreed they needed to defend the bank against a growing number of critics questioning its policy and credibility
“There was general agreement that there was a need to counter the perception that monetary policy could no longer contribute to a return of inflation (to the ECB’s target),” the ECB said in the account of the meeting.
“In light of recent public criticism … in a Member State, it was viewed as important to reaffirm collectively the independence of the ECB in the pursuit of its mandate,” the minutes said.
Since then, several ECB policy makers, including President Mario Draghi and the head of the Bundesbank, Jens Weidmann, defended the bank’s policy in the German press, saying it was a reaction to rather than a cause of weak economic growth.
The record of the April meeting suggests the rate setters, which include the euro zone’s 19 governors and the ECB’s top six executives, were more optimistic about the economy.
But they remained concerned that low oil prices might undermine wages and other prices, and noted financial markets were not signalling faster inflation even after oil prices rebounded.
Irish governor Philip Lane injected further caution on Thursday, saying the ECB needed to assess if the oil price bounce was sustainable when assessing its impact on inflation.
Market-based measures of inflation expectations remain near the low level they had reached when the ECB announced it would buy government bonds in January 2015, despite repeated ECB moves to boost the programme.
The rate setters also said the ECB does not “mechanically” react to changes in its three-year staff inflation forecast and takes a more flexible approach when assessing the “medium-term” outlook.
This further lowered the chances of any further ECB action in June even if quarterly staff forecasts were to be cut.
Slovenian governor Bostjan Jazbec said on Thursday the ECB may even lift its own economic projection if data remained supportive.
(Reporting By Francesco Canepa; Editing by Hugh Lawson)
