Economics
Post-Crisis ECB Considers How It'll Set Rates in the Future
- Balance-sheet size is key for rate floor vs. corridor approach
- The experiences of the Fed and Bank of England may be a guide
The European Central Bank (ECB) headquarters on Sept. 13.
Photographer: Jasper Juinen/BloombergThis article is for subscribers only.
The European Central Bank is starting to consider whether the financial crisis changed forever the way it controls interest rates.
A decade of pumping cash into the financial system put so much downward pressure on market rates that all policy makers can do is set a floor -- the minus 0.4 percent they impose for holding banks’ deposits overnight. Like the U.S. Federal Reserve and Bank of England though, the ECB will need to weigh whether to revert to a system of controlling rates by keeping liquidity tight.