The ECB has left interest rates unchanged, but will financial stimulus follow?

The report from the ECB meeting, as well as interest rates, which, as it became clear, remain unchanged. The key interest rate remained at 0.00%, the margin on lending remained the same at -0.25%, and interest rates on deposits remained unchanged at -0.40%.

But what does this mean for TLTRO and the next QE program?

The Bank expects interest rates to remain at these levels in the first half of 2020. ECB will begin to reinvest the debt accumulated by QE over a prolonged period of time, and this will happen after the first interest rate hike. The bank has indicated 1H of 2020 for a possible interest rate change because then they expect inflation to go up, reaching its target. The ECB intends to launch a new TLTRO by 10 points higher than expected. The bank will take the basis of the interest rates on deposits + 10 points.

There is little in the report. The change in the mood of the bank is now quite noticeable to the dovish country, but the change in the applicable interest rate for the new TLTRO will definitely be a factor that will benefit banks and financials in Europe, which is hawkish.

The report does not change the situation much, because the markets had already appreciated a 10-point interest rate cut by March 2020. The initial reaction of the euro was a collapse of about 30 pips, but then the price quickly covered the losses and even made a new spike up about 70 pips from the bottom at the first reaction.

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