ECB’s December minutes suggests possibilities for a further rate cut

ECB's December meeting minutes revealed that the probability for a further deposit rate cut as only few members expressed their preference for a cut, possibly beyond the 10bp reduction. The meeting minutes noted that a 10bp deposit rate cut has the advantage of leaving space for further downward adjustments.

The cost of the negative deposit rate not only considers the price (rate) but also the amount (excess liquidity) which is required to be deposited at the negative rate with the ECB. The amount of excess liquidity continues to grow as the ECB persists to buy bonds, thus increasing the burden on the banking sector related to the negative deposit rate, with the risk of increasing unattended consequences of a negative rate.

The technical details of the QE programme will be reviewed in spring, the ECB noted and it continues to urge that the programme is flexible in terms of adjusting its size, composition and duration.

"In our view, adjusting the QE programme seems like the most likely first step if the ECB, against our expectation, eases again, but a further deposit rate cut can no longer be ruled out" - Danske Bank