The package of measures announced today by the ECB will probably have limited direct impact on money and credit conditions.

The ECB introduced new “targeted longer-term refinancing operations”, under which banks will be able to borrow from the ECB at a fixed rate for up to about four years to fund loans to the private sector, except for housing. The initial allocation of about €400 billion would allow an increase in the stock of such loans by 7%. The interest rate is fixed at the level of the main refinancing rate on take-up plus 10 basis points, i.e. only 0.25% currently. This is significantly more generous than the Bank of England’s funding for lending scheme (FLS). Unlike the initial FLS, however, it appears that banks will be required to hold additional capital against new loans. This, coupled with weak credit demand, may limit usage.

The ECB cut the main refinancing and deposit rates by 10 rather than the expected 15 basis points. It “intensified preparatory work” on buying asset-backed securities but has yet to make a formal decision to do so. The timing and size of any programme remain opaque. Decisions to extend fixed-rate full-allotment regular repos until at least end-2016, and no longer to sterilise bond purchases under the securities markets programme, were expected and are relatively insignificant.

The interest rate cuts are of net benefit to the banking system, since borrowing from the ECB significantly exceeds cash holdings. Cash-rich core banks, however, suffer at the expense of peripheral institutions with high borrowing and no excess reserves, although the amounts involved are small.

In his press conference comments, ECB President Draghi continued to dangle the carrot of an eventual US / UK-style QE programme. However, the Bundesbank’s support for today’s package, allowing Mr Draghi to trumpet a unanimous decision, may have been offered in return for keeping QE off the table for many more months.

The hope is that confidence effects from today’s announcements will be significant, while inflation will revive gradually as economic recovery continues. The latter scenario is plausible but monetary trends over the summer will be the best gauge of whether further ECB action will be required later in 2014.