Mario Draghi loosens the noose around euro-zone banking
Bloomberg adores feeding the rumor mill. Ahead the ECB meeting in March, its wishing to be anonymous sources in the Governing Council reported that the central bank would considerably cut the projections for the euro-area GDP and inflation. Following the meeting, they said that many policy-makers wanted the forecasts to be cut even lower. Banks were rather joyful ahead the meeting, like “Tomorrow, we going to have a lot of money! Mario Draghi bought a new printing machine!” The reality exceeded the most ambitious dreams. The ECB announced a fresh round of Targeted Longer-Term Refinancing Operations (TLTROs). Furthermore, it promised to keep the interest rates at 0% and -0.4% at least through the end of 2019.
The decision to start a new round of LTROs for commercial banks was predictable. It is fitting that it was announced in March. In winter, we often wait for spring to come. In spring, we wait for winter to go. The euro-area economy was not feeling well, to say the least, in the second half of 2018, hoping secretly for easing of the monetary policy. The ECB needed to do it in the right time. So that the euro area wouldn’t be like a girl who had been waiting for a prince until she retired. Another matter is whether the mass monetary stimulus will help manage the foreign troubles.
Based on the drop of European stock indexes, banks will hardly feel comfortable soon. The ECB is not going to get back to positive interest rates, disappointing depositors. On the other hand, they won’t face any problems with the repayment of previous loans or ample liquidity, which outrages other representatives of the financial sector. All of this looks like troubles of a married man. How should he live? If he boozes, his wife is annoyed, if he doesn’t drink, his friends are unhappy.
A good ex-wife is always about to meet you in future! The EUR/USD bulls have been afraid of LTRO, having forgotten that it was not that popular in the past. Banks were not willing to borrow money, and the ECB gave up on it, focusing on QE. Now, it decides to get it back, throwing a sweet to commercial banks, suffering from negative rates. The regulator’s life seems to be successful. It is so when you are asked more often than you ask.
Everybody used to be criticizing Mario Draghi before. For inappropriate start of assets buyout program when the Fed has already finished its QE. For too optimistic forecasts for the euro-area GDP growth in 2018, which have failed. Anyone can offend a boxer, but not everyone has enough time to ask a pardon. The ECB president’s press-conference knocked the EUR/USD bulls out. The derivatives market doesn’t any longer believe that the rates will be raised in summer, 2020, investors got an exact date of LTRO start and Super-Mario said that the Governing Council is likely to act reasonably. I feel a little sad, thinking that he is to retire soon. The Euro area already loves this Italian. After all, if a woman doesn’t know what she wants more, to marry you or to kill you, then she obviously loves you!
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