ECB: July was a transition meeting for the central bank – BBVA

The European Central Bank (ECB) held its meeting on Thursday. The central bank as expected kept interest rates and their purchase programs unchanged. According to the Research Department at BBVA, the ECB might introduce changes to the tiering multiplier after the summer break. 

Key Quotes: 

“Over the last few weeks there was some speculation over whether the ECB could signal a rise in the multiplier on tiered deposit rates with excess liquidity increasing significantly and expected to rise further going forward due to the asset purchase programs and the TLTROs. While ECB members did not discuss altering the tiered interest rate system in today’s policy meeting, Mrs Largarde stated that the ECB is open to the possibility of changing it in future.”

“The ECB could do so by either changing the multiple factor or the interest rate. On the flipside, Mrs. Lagarde emphasized that the tiering system is working well - alleviating side effects on banks and that the TLTRO has been a great success given its attractive cost and no-stigma effect.”

“Today’s wait and watch policy meeting suggests that the ECB will stay put in the short-run regarding monetary policy, in turn awaiting better clarity on the shape of economic recovery and financial market conditions, while continuing to use the PEPP with high flexibility. That said, a change in the tiering system for deposits after the summer break cannot be discounted.”