0937 GMT [Dow Jones]--The ECB neednt raise its deposit rate back to zero if it embarks on a large-scale quantitative easing program, BNP Paribas economist Ken Wattret writes. The argument in favor of raising the rate on bank reserves goes something like this: When a central bank buys bonds from banks, it adds to bank reserves. Since a negative deposit rate punishes banks for excess reserves, lenders might not want to sell their bonds to the ECB. We are unconvinced by this argument for a number of reasons, wrote Wattret. For example, a higher deposit rate would raise market interest rates, partly undermining the reason for purchasing the assets in the first place. Also, a higher deposit rate could put upward pressure on the euro, something the ECB probably would like to avoid. (todd.buell@wsj) (@ToddBuell)
Posted on: Tue, 02 Dec 2014 09:41:55 +0000
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