Negative rates in Europe are not our baseline. But we think the odds of a depo cut are higher than what the market is currently pricing.
First, the ECB faces big institutional constraints to policy. QE runs against European treaties and political realities. Private-sector purchases are constrained by the limited size of the ABS market and the bank-based nature of the Euro financial system. The ECB is already moving to verbal guidance, but short rates are one of the few policy arsenals left.
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Deutsche Bank