All in all, these factors clearly indicated that the repo rate and repo-rate path should be lowered in July (see Figure 11). As you know, I entered a reservation against the decision to cut the repo rate by 0.5 percentage points and advocated a smaller cut of 0.25 percentage points, and to wait until 2016 before making the first policy rate increase. There are several reasons for this. Firstly, I consider that the smaller repo-rate cut entails a better balance between bringing inflation up towards the target and taking household indebtedness into consideration. As I see it, there are also clear signs that economic activity is about to improve, and the conditions are therefore right for stabilising inflation around 2 per cent by means of a smaller cut in the repo rate. Moreover, the smaller repo-rate cut is more in line with our earlier actions, which was reflected in the market expectations of a 0.25 percentage repo-rate cut. I do not think one should surprise economic agents unnecessarily, and our actions should as far as possible be predictable and long term. I would like to emphasise that there is, on the whole, consensus among the Executive Board with regard to economic developments and monetary policy. As I have said before, it is a question of a difficult balancing act, and it is natural that there will be some minor differences of opinion on the assessments.
In this regard, I am worried about two current shortcomings:   The reach of Title II’s one-day stay on the close out of qualified financial contracts is incomplete and does not extend to contracts governed by non-U.S. law with nonU.S. counterparties.   The placement of the parent company into receivership may be treated by these counterparties as an event of default due to the presence of a parent guarantee or other cross-default provisions triggered by the parent-level insolvency. Unless market participants make the appropriate contractual changes that will ensure that the placement of the parent company into Title II will not trigger the close-out provisions of over-the-counter derivatives and other qualified financial contracts that are outside the reach of Title II’s U.S. application, foreign counterparties to a SIFI will tend to exercise this right  4  BIS central bankers’ speeches  whenever it is in their individual economic interest to do so. This would create significant difficulties. Such actions could greatly complicate the operations of the firm during a time when it is already under considerable stress and could propagate stress more broadly in financial markets. There are two main courses of action for addressing this concern, and they are not mutually exclusive. First, existing derivative contracts need to be amended and future contracts need to provide that the parent’s entry into the Title II proceeding does not trigger the close out option.