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ECB Has Significant Cohort Who Doubt Tiering Is Best Solution

ECB Has Significant Cohort Who Doubt Tiering Is Best Solution

(Bloomberg) -- A significant number of European Central Bank policy makers are unconvinced that a tiering system is the best way to soften the impact of negative interest rates on banks, according to euro-area officials familiar with the matter.

While President Mario Draghi signaled during Thursday’s Governing Council meeting that he would support such a measure, tied to another rate cut, some policy makers expressed reservations, said the officials. They asked not to be named because the deliberations are private.

ECB Has Significant Cohort Who Doubt Tiering Is Best Solution

The doubters highlighted alternative options including changing the terms of the ECB’s newest long-term loan program for banks in a way that would alleviate the pressure on banks, the officials said. In his press conference after the meeting, Draghi acknowledged the qualms of some officials about a two-tier system that would exempt some deposits.

Policy makers gave ECB staff a comprehensive mandate to study ways of supporting the euro area as it suffers from a manufacturing slump that threatens to infect the broader economy. Some investors already predicted the central bank would announce a stimulus package this week, but Draghi said there were different “nuances” on how to proceed.

“We have tasked the relevant Eurosystem Committees with examining options, including ways to reinforce our forward guidance on policy rates, mitigating measures, such as the design of a tiered system for reserve remuneration, and options for the size and composition of potential new net asset purchases.”
--Mario Draghi

There was consensus among policy makers that more monetary stimulus will be announced at the next policy meeting in September, the officials said. They were less convinced that all measures under consideration should be implemented in a single package.

Some officials questioned the effectiveness of restarting asset purchases, according to the people. One said that a few members argued against including corporate bonds in any new program.

An ECB spokesman declined to comment on the Governing Council’s deliberations.

To contact the reporters on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net;Piotr Skolimowski in Frankfurt at pskolimowski@bloomberg.net;Carolynn Look in Frankfurt at clook4@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Paul Gordon

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