On the March ECB Policy Decision
The ECB took deposit rates more deeply negative, lowered the main rate to zero, increased QE purchases and expanded them to include non-bank corporates, and introduced new sub-zero-rate TLTROs. By cheapening the euro, these moves exacerbate the over-valuation of China’s currency. Since euro area banks are capital-constrained, punishing them with negative rates for not lending is a dead-weight cost. By pretending to be helpful, the ECB eases the sense of crisis that is the only effective goad to necessary structural reforms in the euro area. The only good that can come of this is that it might slow down further ill-advised rate hikes from the Fed.