Banking stocks likely to plunge if ECB cut rates further

Quantitative easing, while seen as positive for equities, recent reactions after Bank of Japan (BOJ) introduced negative rates suggest, negative rates may not be a very good option to execute. Weeks back, executive board member Benoit Cœuré assured that European Central Bank (ECB) closely monitoring the risks stemming from negative rates, especially to banks as it erodes profitability. These comments suggest ECB may not choose to cut rates today, but if it still does, that may not bear well for banking stocks.

Bankers across globe and in Euro zone have indicated that negative rates are not bearing well for their centuries long banking model and eroding profitability. Due to larger fear of deposit withdrawals, banks couldn't pass on the negative deposit rates to consumers.

According to banking analysts, if ECB extends negative rates by quarter basis points it could erode 4% profitability margin from here. Lower the bound, greater the pain.

We at FxWirePro, ECB looking at these developments, likely to take cautious approach towards negative rates today and will refrain from further lowering it. Any stimulus will come in the form of further increase in asset purchase.

European blue chip index, EuroStxx50 is currently trading at 3020, up 0.2% for the day.