ECB negative rate review gets tentative welcome

Bloomberg

Two of the ECB Governing Council’s leading members gave a tentative welcome to the review of the institution’s negative rate policy announced this week by President Mario Draghi.
Speaking at the International Monetary Fund meetings in Washington, both Chief Economist Peter Praet and Bundesbank president Jens Weidmann signaled they were open to the rethink, though they stopped short of any commitment to change.
Expectations are running high that the ECB could introduce a so-called tiering system that exempts some bank deposits from the negative rate. Draghi flagged the ECB will look at the impact of almost half a decade of sub-zero policy when officials take stock of the economy and design a response in the coming months.
Weidmann said he “wou-ldn’t necessarily overestimate” the effect that tiering could “have on lending, which you can see already when you look at the relatives sizes of interest payments on deposits and other returns.” The impact of unconventional measures fades over time, and side effects could increasingly materialise, he told reporters.
Policy makers have stre-ssed they only would tweak their negative rate policy if there is evidence banks are curbing lending to companies and households. Th-ere has been little proof of that so far despite frequent complaints especially from bankers in Germany and France that the industry is losing more than 7 billion euros ($7.9 billion) a year because of negative rates.
Praet was careful to draw this distinction in his remarks. Tiering can “mitigate some of the negative consequences of some policy you have in pl-ace,” he said in a panel discussion in Washington, but it isn’t in itself a policy “instrument.”