FRANKFURT (Reuters) - A rate cut at the European Central Bank’s September meeting appears certain, four sources close to the discussion told Reuters on Thursday, adding that government bond purchases and a revamped policy message were also likely.
ECB President Mario Draghi all but pledged on Thursday to ease policy further as the growth outlook deteriorated, listing a number of possible options under study by ECB staff.
Of those tools, a cut of the ECB’s deposit rate, effectively raising a charge on idle cash held at euro zone banks, was the most consensual, the sources, who spoke on condition of anonymity, said.
This may be accompanied by a tiering system, whereby banks pay a discount rate on part of their excess liquidity, although this tool still left a significant number of governors unconvinced.
A resumption of the ECB’s 2.6 trillion euro ($2.90 trillion)bond-buying program was also seen as likely, although finding more eligible assets to buy was not easy.
For starters, governors had misgivings about buying more corporate bonds because of the risks they entail. Stocks and bank bonds were seen as non-starters.
If the ECB were to buy more government bonds, however, it needed to relax some of the constraints it forced upon itself when it first launched the program in 2015.
One source said that removing a cap that barred the Eurosystem of euro zone central banks from owning more than a third of any individual country’s government bonds was seen as the easiest solution.
This could be achieved by raising that issuer limit to 50% or disregarding it altogether, the source said.
The ECB’s guidance on the future path of interest rates will also be changed in September to guarantee an easy stance even after July 2020, and the central bank’s policy target may be tweaked.
The ECB’s definition of price stability is currently an inflation rate “below, but close to, 2% over the medium term” but Draghi said there was “no cap” at that level after so many years of low price growth.
A source said policymakers had attended a policy seminar earlier this month where they were presented with the option of trageting an average inflation rate over time.
An ECB spokesman declined to comment.
Reporting By Francesco Canepa, Frank Siebelt and Balazs Koranyi; Editing by Peter Graff