However, as the domestic monetary transmission mechanism is constrained, there may also be unintentional cross-border spillover effects, such as increases in capital inflows to other countries. The effects could also feedback to the originating country. Meanwhile, central banks in emerging economies have also shifted toward monetary accommodation or relaxed recent tightening moves. These steps are necessary to support growth.
The third channel works through portfolio rebalancing: it’s still too soon to assess that. Bank and non-bank investors who sell us their securities have a very strong incentive to invest elsewhere rather than leave their money doing nothing, with deposits at the ECB costing – 0.20% p.a. The sharp upturn in the real economy should encourage them to lend more to business.