A rate hike is not expected for this year and there is even a growing debate to lessen the burden on banks from the negative deposit rate.
The European Central Bank is in an uncomfortable situation. It only announced its exit from the crisis-era multi-trillion bond buying program at the end of last year. However, only four months later there is more and more evidence that the economy is only having a temporary weakness as data across the board comes in lower than expected.
That's a problem for the ECB, as slower growth and demand will not help to bring inflation back toward their target of 2%. A so called two-tiered approach would mean that banks are exempted in part from paying the ECB's 0.40% annual charge on their excess reserves. That would boost the banks' profits at a time many lenders struggle with low profitability. Some members of the ECB's Governing Council are said to be in favor of such a move.
The TLTROs are loans that the ECB provides at cheap rates to banks in the euro area. As a result, lenders are able to provide better credit conditions to customers, which in turn stimulates the real economy.
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