Hi,
I have fairly basic understanding of economics but am currently studying more. Today, I encountered this article(below). Can anyone enlighten me why a higher deposit rate might be necessary before any QE action?
An interesting take from HSBC on large scale asset purchases. They say that the ECB may have to raise the deposit rate before would deem it worth their while to sell bonds to the ECB. If banks park the cash from bond sales at the ECB then they will effectively be taxed via the negative deposit rate.
QE is just a giant asset-swap between banks and the central bank. As it stands, with negative rates, the ECB would be taking a loan from the banking system and charging the banks for making the loanOf course, the hope is that the proceeds would filter through into the economy but they would need a home in the meanwhile, so it’s a very valid point by HSBC. It’s certainly something to consider if we get any new details next week and any mention of raising the deposit rate may see a big reaction in the euro as the news robots read “raise rates” and react.
Source: ECB may have to raise deposit rate before large scale QE - HSBC | ForexLive
Thanks!