ECB rate cut: the analyst reaction

The ECB cut rates unexpectedly on Thursday. While there was market consensus that easing was coming, there was little agreement on the form in which the easing would take place. A cut was seen as stifling the ECB’s future flexibility by taking it to the lower bound and flirting dangerously with negative rates, while further LTROs were seen as potentially constrained by AQR-related stigma.

But the big news from Draghi’s press conference, however, is that the ECB is clearly not afraid of the former, and not necessarily scared of the latter either.

The ECB ended up cutting the main refinancing rate by 25 basis points, whilst reconfirming its commitment to fixed-rate tender full allotment in its MROs and special term refinancing operations, and its three-month LTROs.