This coming Thursday the European Central Bank will announce its decision on interest rates and further policy of QE. The commonly held opinion of the forthcoming event is quite unanimous – the interest rates will be kept unchanged along with QE policy.

It might seem a slam dunk prediction that rates will be held at current levels for quite some time – the refinancing and deposit rates are already at their lows at 0.05% and -0.2% correspondingly and cannot be cut any further. The logical chain of thoughts that lead to conclusion of this kind is easy to follow – the main purpose of rates cuts perpetrated by ECB last summer was to spur lending by commercial banks in Euro area. Obviously, negative deposit rate make it unprofitable for banks to hold reserves with ECB that in its turn enhances lending of funds to businesses and private consumers. Since two downward revisions of interest rates over three month did not help to accomplish any tangible improvements, it is reasonable to suggest that ECB will stay put for the forthcoming months.

This impeccable logical inference though is based on erroneous premise that inexorably leads the public to faulty expectations on further course of ECB`s actions.
Translate to English Show original