Coeure Sees No Need for ECB to Dilute Impact of Negative Rates

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Benoit Coeure, the European Central Bank Executive Board member in charge of markets, said he doesn’t see any reason to dilute the effect of negative interest rates on banks and signaled a new long-term loan series may be less generous than the previous round.

“At the current juncture, I do not see the monetary policy argument for tiering,” Coeure said in an interview with Germany’s Frankfurter Allgemeine Zeitung published on the ECB’s website Tuesday. “Those who would profit from tiering are, above all, banks with high excess liquidity, of which many are located in France and Germany where bank lending is already running high. Thus there is no evidence so far that the negative deposit rate is bad for lending. On the contrary.”

Coeure Sees No Need for ECB to Dilute Impact of Negative Rates

Coeure acknowledged that negative interest rates -- in place for almost five years -- can produce harmful side effects that increase the longer the tool is used, and said their usefulness should be revisited “regularly.” Concerns focus on financial stability and rising asset prices, he was quoted as saying. While the policy also has an impact on bank profitability, they are “not the biggest problem.”

The Frenchman, who is a contender to replace Mario Draghi when his term as ECB president expires in October, said he has “mixed feelings” about the health of the euro-area economy. The central bank’s latest forecasts, published in March, assume a growth pickup in the second half -- a scenario Coeure said will only materialize “if there are signs of a resolution to the trade dispute.”

An update will be available in June, when the ECB is also likely to announce the terms of its new lending program, the so-called TLTROs. Coeure argued that the “remarkable progress” in credit supply to companies and households will have to be taken into account in fine-tuning the measure. Under a previous plan, banks were paid as much as 0.4 percent to take up funding.

“The situation today is very different to 2016, when we issued the last TLTROs to actively support lending,” Coeure said. “However, we want to protect this achievement.”

Asked if conditions no longer need to be so generous, Coeure said: “The Governing Council will decide on that based on economic data.”

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