HSBC Outline Dynamics Around Bundesbank Remuneration Tweak

In the wake of the Bundesbank’s remuneration change HSBC suggest that “the main rationale of the decision by the Bundesbank is the same that pushed the ECB to announce in July that it will no longer remunerate minimum reserves - that is to save money.”

• “The level of cash reserves has already declined significantly, and governments always tend to keep a certain level of cash, so we see little risk that the German government would want to reduce it much further as a result of today's decision.”
• “Other central banks should not face the same type of pressure. Also, the timing of the announcement - with the Bundesbank going 'solo' only a few days after the ECB meeting - suggests this might have been discussed at the latest ECB meeting, but the ECB decided not to act. The minutes of the July meeting, to be published on 24 July, might confirm this (or not).”
• “We could also see more pressure on the ECB to move faster on QT. We already expect an announcement towards the end of the year that PEPP reinvestments will end in H223.”