Spiegel Online leads with an update to its news story on Monday, according to which the interest rate threshold is likely to be top secret. The story said that a majority of central banks have rejected the idea of transparent interest rate caps.
The what … they will cap interest rates at an unknown level. So they have no way of anchoring expectations? So if this is an issue of “illiquidity” rather than “insolvency”, the benefit from announcing a target and not having to actually intervene just doesn’t take place.
I’m sorry but everytime the ECB does something that makes it look like a real central bank it contradicts it with something … well weird.
The justification is that they don’t want it to be “a one-way bet” … but if they introduce a target, and its credible, and the failure is one of illiquidity, the ECB takes on NO RISK – it just leads to a price change. The losses/gains are between private sector traders, not the ECB.
So are they worried about their credibility, or do they think the banking system is actually insolvent? Or is this just weirdness?