The European Central Bank (ECB) has lowered its benchmark interest rate to 0.15% from 0.25% in an effort to stimulate economic growth and avoid deflation in the eurozone.
It has also reduced its deposit rate below zero, to -0.1%, which means commercial banks will have to pay to lodge their money with the central bank, rather than receive interest.
The idea is to incentivise the banks to lend to businesses, thereby stimulating growth.
The ECB is the first of the “Big Four” central banks (the ECB, the US Federal Reserve, the Bank of Japan and the Bank of England) to do this.
The BBC’s economics correspondent, Andrew Walker, said: “The consequences are unpredictable – how will banks respond to this very unusual move? That the ECB chose to do this in the face of that uncertainty is a very telling indication of its concerns about the weakness of Eurozone recovery and the danger of deflation.”
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.