Forex Flash: ECB maintains straight line – Goldman Sachs

FXstreet.com (Barcelona) - The ECB has established a very easy monetary policy stance: market overnight rates are close to zero and the liquidity situation is ample. However, “owing to impairments to monetary policy transmission stemming from the fragmentation of European financial markets, this easy policy stance is not being passed through to the real economy in the periphery, where stimulus is most needed.” notes the Economics Research Team at Goldman Sachs.

In the eyes of the ECB, cutting policy rates in this context is largely futile, as pass-through is so modest. For the ECB, it is better to promote the reactivation and reintegration of peripheral credit markets, so as to reestablish monetary transmission. Moreover, as financial systems in the Euro area are bank-centered, the ECB should concentrate on improving bank credit availability when attempting to reinvigorate policy pass-through.