MNI has a story out, citing sources within the ECB:
- Negative rates won’t help with SME credit expansion
- Negative rate talk is a way to demonstrate ECB firepower
- Corridor narrowing may be a better rate cut strategy
The corridor is the lending spread minus the deposit spread and with the cut last month, it has matched the narrowest on record. It’s explained here. The market has backed away from the idea of negative deposit rates in the near-term but the MNI story (and MNI is known to have insiders at the ECB) is a signal that negative rates were never really on the table so they probably won’t be in the future either — that’s good news for EUR bulls.
So far the euro hasn’t been able to make any gains but there is talk about heavy selling interest out of Eastern Europe so it may only be a matter of time.
