The great debate over interest on excess reserves (IOER), base money and short term debt used ‘the floor’ analogy to describe what happens to short term interest rates. But that might not have been quite the right analogy, at least in the US case.
Izzy has already covered Manmohan Singh’s excellent paper and presentation. In it he raises a few points in regard to the supposed floor that IOER sets for rates, and it is worth exploring it a bit more. Read more
Fee waivers and duration extension, according to Fitch’s Fund & Asset Manager rating group.
They’re talking, of course, about how European money market funds will react to the ECB’s decision to cut its deposit rate to zero, a fact which should soon push the Euro overnight index average (Eonia) to historical lows of between -15 and +15 bps, putting MMF yields at risk of negativity. Read more
So, where’s the incentive to hold a euro now?
As expected the ECB has cut its main refinancing rate by 25 basis points to 0.75 per cent and the marginal lending facility (emergency funds) by 25 basis points to 1.50 per cent.
In a less expected move they also cut the deposit rate to zero. Read more
Before this month’s ECB interest rate policy decision, a number of analysts had come to think that the ECB might be inclined to adjust its so-called rate corridor.
The corridor is best explained as the difference between the discount rate (or deposit rate) and the central bank’s most punitive rate, the marginal borrowing rate in the case of the ECB. Read more
New liquidity rules for UK banks, announced by the Financial Services Authority on Monday, slightly overshadowed an announcement from the Bank of England on the subject of reserves accounts.
As the BoE press release noted (our emphasis): Read more
Here’s an interesting view from BarCap on Monday.
As reported before, speculation over whether the Bank of England will cut the remuneration rate for money commercial banks are holding at the central bank is growing. Mervyn King is increasingly being asked about the matter at press conferences. Read more
Bank of England governor Mervyn King may have told economists this week, that the Bank had no immediate plans to change the rate paid to commercial banks on sums deposited overnight, but it appears not everyone believes him.
Among those still speculating the Bank will cut remuneration rates — and do so soon — is Morgan Stanley analyst Melanie Baker. Read more