The European Central Bank held interest rates unchanged yesterday, with deposit rates at -0.50% and refi rates at 0.0%. But, they added to the QE programme, by 120 billion Euros/month and restarted LTROs. The considerable increase in QE turned the Euro quite bearish and EUR/USD fell around 300 pips yesterday from top to bottom. Today we are hearing ECB members say that yesterday’s action wasn’t all.

ECB’s Visco Commenting

• There will be more action if needed
• Widening of spreads makes monetary policy transmission more difficult
• Adds that the ECB can front load bond purchases if needed as well
• Thursday decision was not the final word

Comments by ECB governing council member, Pablo Hernandez de Cos

• ECB still has room to act, not at lower-bound
• ECB could buy more Italian debt if necessary
• QE rather than rate cut is the best response to the virus situation
• But does not rule out rate cuts if situation worsens

They are right in saying that the QE programme works better than lowering interest rates. I mean, if people are isolated and businesses are closed, what good would lower rates do. The higher QE and buying of national debt by the ECB, such as in Italy if it’s needed, can ease some of liquidity pressures, since businesses will have to pay rent and interest on the debt. But then again, it’s only as much financial institutions can do. Only governments can tackle coronavirus, by isolating the population, obviously.