Reuters first reported that European Central Bank (ECB) policy-makers are closing in on a rule preventing commercial banks from making a guaranteed profit worth tens of billions of euros at the central bank’s expense. The rule will reduce the interest the ECB will pay to commercial banks on the trillions of euros of reserves that the central bank itself created during the cheap money era, via loans and purchases.
Subsequent follow-ups revealed the monetary policy moves the ECB plans to make to control inflation. Sources close to the discussion said ECB staff now see the need for fewer rates than markets currently estimate to tame prices, based on the output from a new internal model. Reuters report on future rate hikes was cited as one factor influencing prices in euro markets on Oct 13.
Reuters also revealed that ECB policy-makers have discussed a timeline for running down their massive 3.3-trillion-euro portfolio of euro bonds as part of that tightening – with the process due to start in the second quarter of next year.