European Central Bank cuts interest rates 0.25% to 3.75%

[toomuchtodo]

https://www.cnbc.com/2024/06/06/european-central-bank-heads-for-first-rate-cut-since-2019-live-updates.html

[toomuchtodo]

https://www.ecb.europa.eu/press/pr/date/2024/html/ecb.mp2406...

https://www.bloomberg.com/news/articles/2024-06-06/ecb-deliv... | https://archive.today/EPWB2

[wcoenen]

I wonder why government bills can have a lower yield than the central bank deposit rate.

For example, the German 3 month bill is below 3.6% now.[1] Shouldn't banks be selling these bills, and putting the money with the ECB instead where they can get a higher risk free yield? Thereby driving the yield of the gov bonds up towards the ECB deposit rate?

[1] https://tradingeconomics.com/germany/6-month-bill-yield

[epoxia → wcoenen]

Maybe it has to do with the duration, with there being a chance that the ECB could reduce rates again within a 3 month span?

[wcoenen → epoxia]

I didn't realize central banks could change rates so frequently. Apparently sometimes they do make changes every month, so it's a plausible explanation.

But then I looked up 1 month bond rates, and apparently those are still below the deposit rate!

http://worldgovernmentbonds.com/bond-historical-data/germany...

[pton_xd]

Isn't this basically giving up on the 2% inflation target? EU inflation rate stands at 2.6% and they're already cutting rates.

[toomuchtodo → pton_xd]

If you wait to cut until you're at the target, you're already behind the curve and could cause unnecessary economic system damage. Similar to piloting a supertanker; you have to account for direction and momentum. In this case, it is time to add power.

[asdasdsddd → pton_xd]

Scary, despite being totally arbitrary, having an inflation target helps stabilize prices.

[adammarples → pton_xd]

They gave up in that target a long time ago

[dr_kretyn]

[deleted]

[dr_kretyn → dr_kretyn]

[deleted]