ECB monitors impact of anti-deflationary steps

Central Bank watchers predict that the European Central Bank (ECB) will focus on monitoring the impact of last month’s unprecedented package of measures during this week’s monthly meeting The European Central Bank (ECB) is unlikely to make new policy moves at its monthly meeting this week, focusing instead on monitoring the impact of last month’s unprecedented package of measures.

After cutting rates last time round and pre-announcing new liquidity measures in its battle to prevent the single currency area from slipping into deflation, the ECB will “sit tight” at its meeting on July 3, central bank watchers predicted.

“The ECB is clearly going to sit tight for now at least while the interest rates and liquidity measures it announced at its June meeting increasingly kick in,” said Howard Archer at IHS Global Insight. “Indeed, a number of senior ECB policymakers have indicated that the bank is unlikely to act again in the near term at least, as it will take time for its recent announced package of measures to take full effect,” the expert continued.

At its June meeting, the ECB entered uncharted waters, taking one of its key interest rates into negative territory for the first time. It lowered its benchmark refinancing rate to 0.15 percent and cut the deposit rate, the rate at which the central bank pays commercial banks for depositing their unused cash, to minus 0.10 percent.

This means that banks will be charged for parking funds at the ECB, in the hope they might lend it on to businesses and consumers instead. ECB chief Mario Draghi also unveiled plans to pump more liquidity into the financial system later this year via the Targeted Long-Term Refinancing...