- Spanish and Italian SMEs pay more to borrow than SMEs in France and Germany.
- There has been some convergence of last.
- We remain concerned about the impact of negative deposit rates, which could be contractionary rather than stimulative.
This Great Graphic was tweeted by Frederik Ducrozet. It shows the rate that banks charge small and medium businesses in Spain, Italy, France and Germany. The latest data point is for April. Italian and Spanish rates fell, though are still well above French and German rates.
The consensus appears to expect the ECB to announce a move to negative deposit rates tomorrow. It seems reasonable that many investors with euro balances would have adjusted them in anticipation of the ECB's move. This anticipation likely helps explain the euro's four-cent slide over the past month.
The impact of negative deposit rates is the subject of much debate, as it is unprecedented among large central banks. While many observers seem to play down the potential disruptive impact, we have emphasized several potential negative knock-on effects for large depositors, which include governments, businesses and investors. We think there could be adverse implications for money markets. In addition, we are sympathetic to arguments that a negative deposit rate would perversely be contractionary rather than stimulative.
The BIS head Caruna expressed similar caution yesterday. He argued that the entire edifice of finance is predicated on positive interest rates. He said the consequences of negative interest rates are not well known and that the advantages of such a move "are not obvious." It may not convince banks to lend or business to borrow or invest.
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