ECB’s Push to Raise Borrowing Costs Runs Up Against Wall of Cash
- Banks’ overnight rate lags ECB benchmark by more than 10bps
- Officials flag inflation risk if transmission mechanism fails
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Lenders’ borrowing costs are trailing the European Central Bank’s benchmark by the most on record, highlighting the challenge officials face to tighten monetary conditions after years of loose policy left markets awash with trillions of euros of liquidity.
The euro short-term rate, or ESTR, is currently 10.5 basis points below the central bank’s deposit rate, which is at its highest in 15 years. That’s close to the biggest gap on record — not counting month-end spikes for banks’ accounting purposes — which was reached earlier this week.