In September 2014, ECB President Mario Draghi cut interest rates on their main refinancing operations, the marginal lending facility rate and the deposit facility to 0.05%, 0.30% and -0.20% respectively. At the time Draghi confirmed that “now we are at the lower bound, where technical adjustments are not going to be possible any longer”.
However, at the press conference on Thursday Draghi reopened the door on extending the lower bound. A further lowering of the deposit rate was openly discussed at the latest meeting, drawing questions from the audience of reporters at the ECB’s press conference, which Draghi appeared to see as an attack on the credibility of the ECB. The excerpt below again shows that central banks will not be held to what they have previously said:
“Let me add one thing about the possible changes, possible cuts in the rate on the deposit facility: the issue there is how come we announced a year ago that that was practically the zero lower bound and now we’re thinking of going into further negative territory? Well, let me state quite clearly that the credibility of a central bank is measured by its ability to comply with its mandate and to this extent any instrument could be potentially used. Given the conditions prevailing a year ago, that was the statement. Today things have changed…”
As always, that was then. This is now. The economy is a dynamic place and the above is a reminder that while central banks look to exhibit a perception of control they are simply responding to the prevailing conditions.