European Central Bank President Mario Draghi opened a new front in the battle against the debt crisis after cutting the benchmark rate to a record low today.
Speaking in Bratislava, Draghi signalled that officials may take the unprecedented step of charging banks to park excess cash with the ECB overnight and that another cut in the main rate is possible.
“We will look at all the incoming data and stand ready to act if needed,” Draghi said at a press conference in the Slovakian capital after the ECB cut its key rate by a quarter point to 0.5 percent. Asked if further action could include taking the deposit rate into negative territory from zero, he said: “We will look at this with an open mind.”
The euro fell on the prospect of a negative deposit rate, which would amount to the ECB venturing into territory few others have dared. With the 17-nation economy mired in recession, Draghi is ramping up the ECB’s response.
He said the ECB will continue to lend banks as much money as they require at least until mid-2014. It has also started to consult with European institutions to improve the flow of credit to companies using collateralized loans, he said.
“To ensure adequate transmission of monetary policy it is essential that the fragmentation of euro-area credit markets continue to decline further,” Draghi said.
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