The Frankfurter Allgemeine Zeitung interview with Mario Draghi produced other insights (see earlier post on his comments on the ECB’s Greek bonds).
Positive news about the eurozone outlook had increased since the ECB’s last governing council meeting, he said, “although uncertainty remains high”, which appeared to confirm there are no further cuts in official interest rates in the pipeline.
Mr Draghi also hinted strongly he would not relax further standards applied to the collateral banks can use to obtain the central bank’s liquidity. Read more
Walter Bagehot. Image by Getty.
Walter Bagehot would be turning in his grave.
A research note published by the Bank of Canada on Thursday has dared to challenge the 19th Century economist’s rule that monetary authorities should lend only at a penalty rate against good collateral in times of a liquidity squeeze.
Instead, the Bank of Canada suggests that it would perhaps be wiser for the rate charged to be cut, by lowering the haircuts set on collateral exchanged for central bank cash on signs of liquidity shortages. Read more