At the end of last year the ECB lowered its projection for GDP growth in 2013 substantially to -0.3% (middle of ECB range) and at the same time left key rates unchanged. The economic data released in the meantime served up no additional alarm signals. The EU Commission’s economic sentiment index released today (covering the industry, services, retail and construction sectors as well as consumer confidence) showed a marked improvement in December for the second month running. Overall, we are somewhat less skeptical than the ECB and think marginal EMU growth in 2013 is achievable (forecast: 0.2%).
Should, contrary to our expectations, the ECB lower the main refinancing rate further, we consider a negative rate for the deposit facility more likely than a narrowing of the interest rate corridor. The experiment of a negative deposit rate would have both contractionary and expansionary effects: contractionary in terms of liquidity and expansionary in terms of lending rates. Using the deposit facility would then cost the banks money, which could provide a spur for a pickup in interbank lending. For now, however, it seems sensible to await the impact of the other “three-year tender experiment”. From 30 January and 27 February, namely, banks will be able to pay back as much as they wish from the two tenders with little advance notice. It is difficult to gauge, firstly, how much use will be made of this option and, secondly, what impact this will have on short-term rates, particularly on the EONIA, which hovers close to the deposit rate. Summa summarum, our forecast for key rates: unchanged all year.