Raisin’s Interest Rate Radar: ECB lengthens savers’ path out of interest rate desert

The pan-European deposits platform Raisin (www.raisin.com) regularly publishes the Raisin Interest Rate Radar to assess the ongoing effect of the ECB (European Central Bank) rate policy on savers throughout Europe. The data released by the ECB in March reflects rates up until two months prior to the release (January 2019).
ECB acts to stave off recession but hints at longer-term negative rates

In response to the threat of a Eurozone recession, the ECB moved doubly: on March 7th it pledged that interest rates would stay at current levels at least through year-end and also announced, sooner than expected, the launch of new TLTROs (targeted longer-term refinancing operations) in September to assist cash-poor banks around Europe.

Moreover, the ECB is said to be considering tiered deposit rates which would lower the charge paid by banks on parts of the excess cash placed with the central bank. The measure would be aimed at propping up bank profitability and resilience during an unforeseen slowdown. It would also potentially undermine the incentive underlying negative interest rates — to put money to work rather than depositing it with the central bank – and it would signal the likely persistence of near-zero interest rates for a lot longer.

German economy may prove more resilient than expected

The ECB cut its Eurozone growth forecast for the current year from 1.7% to 1.1%. The German Purchasing Managers Index, a measure of activity in the German manufacturing and services sectors, came out at 51.5, the lowest reading since 2012. In contrast, the IFO index of German business sentiment surprisingly climbed to 99.6  from 98.7 month-on-month in March against consensus expectations of 98.5, pointing towards a German economy which may yet be more resilient than anticipated.

Yields on the 10y Bund dropped below 0% on March 22nd for the first time in three years.

Shifts in retail interest rates

Rates in Germany remained at the lower side of 30 bps in January. Compared to last year, this represents an increase of 9 bps. The biggest winner for euro-denominated deposits is Malta with an 8 bps increase compared to December 2018, though this still puts them 5 bps below last year’s level.

While Belgium enjoys a rate increase, the other BENELUX countries suffer an 11 and 13 bps decrease respectively.

With regards to foreign deposits, Romania is the biggest loser with a drop of 12 bps followed by Croatia with a 7 bps decrease. In January one cannot observe a Brexit risk premium, with rates only slightly increasing by 1 bps. The winner is the Czech Republic with an increase of 7 bps compared to December 2018, representing a noteworthy increase of 88 bps compared to last year.