The changes to quantitative easing announced yesterday by the president of the ECB, Mario Draghi, have disappointed the financial markets, which expected a more incisive intervention. Yet, the changes made by the Eurotower to the securities purchase plan are by no means irrelevant and will certainly have important consequences not only on bank accounts, but also on the life of families and businesses. First, let's recap the changes introduced yesterday by the Governing Council of the ECB:
1) the minimum duration of the Qe is extended by six months, with the deadline shifted from September 2016 to March 2017 (which entails an increase in purchases of at least 360 billion euros);
2) the issues of local authorities are added to the basket of securities subject to purchases;
3) the proceeds generated by all the operations related to the Qe will be reinvested to guarantee "favorable liquidity conditions" and the securities will remain in the ECB's portfolio even beyond the new March 2017 deadline.
4) The interest rate on overnight deposits was reduced from -0,2% to -0,3%. This measure has nothing to do with quantitative easing, but it is very important because it makes it more expensive for lenders to park their liquidity in the Eurotower coffers.
So let's move on to the consequences that all this should produce.
FAMILIES
– The Euribor will sink further and further below zero, further easing the installments of variable-rate mortgages.
– Unless particular offers launched by the banks in a marketing logic, time deposit rates they should shrink further.
BUSINESSES
– The euro will continue to weaken, benefiting companies that export. Several analysts now consider parity with the dollar within reach, which is destined to strengthen in the short term, considering that the Federal Reserve is about to start raising US rates.
– With these rates, borrowing is cheaper.
BANKS
– Lenders earn less and less on loan rates: the increase in volumes (especially as regards variable rate mortgages) could help profitability, but it is still likely that banks will still focus on revenues from services, mainly increasing asset management commissions.
