Divyang Shah, Senior IFR Strategist
When it comes to the eurosystem, the core banks play a more important role on the other side of the ledger and this is in recycling the money back into the system.
Core banks account for just under 90% of the combined overnight deposit, 1wk deposit, and excess reserves.
The divergence in those doing the borrowing and those doing the depositing is important when it comes to the interest rate outlook.
A further cut in the refi rate would have a positive impact on the peripheral banks, while a cut in the deposit rate will only add pressure to the core banks.
While the ECB is technically ready for negative rates, the difference in borrowing and depositing is an argument against the ECB cutting the deposit rate into negative territory.
