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| - After the US Federal Reserve and the Bank of England announced big-bang interventions to support economies facing coronavirus disruption, European Central bank policymakers are to unveil their crisis plan Thursday. Here are some tools the ECB could use to cushion blows to financial markets and economic activity resulting from the epidemic and measures to slow its spread. The ECB's key interest rates have been at historic lows since 2016, and further cuts are not ruled out -- despite complaints the extended low levels hurt banks and savers. Policymakers could nudge the rate paid on banks' deposits in Frankfurt further into negative territory from its present -0.5 percent. "The ECB has little room to cut" but "will probably want to send a clear signal," Berenberg bank economist Florian Hense said. Most likely is a 0.1-percentage-point cut to start -- well behind the 0.5-point cuts from the Fed and Bank of England, although both their rates remain in positive territory. A central bank rate cut should incentivise banks to lend more to households and firms, firing activity. A negative deposit rate means commercial banks are essentially paying the central bank to hold on to their money. Complaints about its policies' impact on bank profitability finally prompted the ECB last year to introduce a "tiering" system exempting some of the lenders' reserves from the negative rate burden. The amount of banks' deposits spared the charges could climb from six times their legally-required reserves to 10 times, said Eric Dor, research director at France's IESEG management school. Most of the benefit would flow to French and German lenders, which presently pay the highest charges on deposits subject to negative rates. As part of its broader push to stoke growth and inflation by boosting lending, the ECB has for years offered banks the chance to borrow hundreds of billions of euros in quarterly so-called "Targeted Long-Term Refinancing Operations" or TLTROs. Under the latest TLTRO scheme, banks pay a lower interest rate the more they lend on to the real economy, going as far as matching the rate on banks' deposits. With a negative deposit rate -- currently -0.5 percent -- that means active lenders are paid by the ECB to borrow money. While those terms could be loosened for upcoming lending rounds, "it may be too late to amend" before banks submit bids for the upcoming TLTRO, Pictet Wealth Management strategist Frederik Ducrozet said. "More likely, the ECB would have to design a special LTRO targeting those non-financial corporations most hit by the crisis," especially small- and medium-sized enterprises (SMEs), Ducrozet added. The Bank of England already took such a step Wednesday. One of the ECB's most powerful and most controversial tools, "quantitative easing" (QE) has seen it buy more than 2.7 trillion euros ($3.1 trillion) of government and corporate bonds since 2015. Despite political and legal challenges, notably from Germany where the constitutional court is to rule on the scheme on March 24, the ECB credits QE with helping boost growth by easing financial conditions in the eurozone. But a decision to restart bond-buying at 20 billion euros per month sharply divided the governing council last September. "We suspect that the ECB will be very reluctant to move all-in on QE immediately," Pictet's Ducrozet said, although there could be lower hurdles to buying more corporate debt than to stepping up government bond purchases. "The ECB could probably purchase corporate bonds worth more than 400 billion euros," dodging technical questions about limits on how much government debt it can hold, Berenberg's Hense said. But he added that the bank "may signal it is ready to start a discussion" on loosening the sovereign debt limits, or even on expanding its asset purchases to bank bonds or stocks if the crisis worsens. tgb/mfp/wai
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