On December 3rd 2015, the European Central Bank met for its monetary policy review. The ECB decided to leave the minimum bid rate unchanged at 0.05%, but cut the deposit rate to -0.30%, from -0.10% a 20bps cut for deposits held at the Central Bank. The ECB then followed up the monetary policy decision with a press conference, where the Central Bank announced that it would extend the QE deadline from September 2016 to March 2017, while leaving the current pace of QE purchases unchanged at €60 billion per month. During the press conference and into the end of the day, the Euro rallied close to 3.06% for the day, closing at 1.0938 and posting a 21-day high. Prices reversed sharply after initially opening the day (03/12/2015) at 1.0612. So why did the Euro rally so strongly despite the E
The ECB recently concluded its first round of TLTRO or targeted long term refinancing operations, which turned out to be anti-climatic. Against an estimated 150bn Euros up for grabs, banks managed to take only 82bn Euros in TLTRO loans from the ECB. The question that might come to one's mind is what is the TLTRO and how is it different from the regular LTRO scheme that is well in place by the ECB. The TLTRO was first announced at the ECB's June 2014 monetary policy meeting where ECB Chief, Mario Draghi unveiled a slew of measures to tackle the high exchange rate and the threat of deflation in the Eurozone. Back then, the ECB allocated a total of €400bn Euros in targeted long term refinancing operations to ease up liquidity in the Eurozone banks. How is TLTRO different to LTRO? The TLT
Quantitative Easing, or Money Printing has been the most commonly used term among Central Banks across the world. Currently, the US Federal Reserve, Bank of England, to name a few engage in QE or asset purchase program in an effort to give their respective economies a boost. The US Federal Reserve for example has embarked on its latest QE since September 2012 promising to buy (and buying) MBS or Mortgage Backed Securities. While it might seem straight forward understanding how this QE(3) works gives investors and traders alike better insights into how the Federal Reserve aims to boost the economy. What is a Mortgage Backed Security MBS for short, falls under the derivatives market and works similar to that of Bonds, stocks or mutual funds. The MBS is a pool of Mortgages backed up by the ...
Quantitative easing is a form of a monetary policy, often used by central banks in order to raise the money supplies during critical times when either the interest rates or interbank lending rates are close to zero. Such situations arise when there is either a low inflation or deflation. In such cases reducing the interest rates even further isn't enough to maintain the money supplies; thus quantative easing is used. When the Central banks cut the interest rates it is seen as an action to encourage lending. Lower interest rates are usually indicated by an increase in consumer spending. Over a period of time, Central banks do come face to face with a situation where they are not able to cut the interest rates any further, by making use of Quantitative easing, they (Central banks) inje