The European Central Bank is considering a smaller-than-normal cut in the deposit rate if officials decide to take it negative for the first time, according to two people with knowledge of the debate.
Policy makers would reduce the rate for commercial lenders who park excess cash at the ECB to minus 0.1 percent from zero, said the people who asked not to be identified because the talks aren’t public. It would be the first time the central bank has adjusted interest rates by less than a quarter of a percentage point. The concept, which has been discussed by Governing Council members, doesn’t yet have a consensus, the people said.
Members of the council, which is holding a mid-month meeting in Frankfurt this week, have said that a negative deposit rate is a potential tool for warding off deflation. They’ve also cautioned that the consequences of such an unprecedented measure aren’t clear. The central bank this month refrained from cutting the deposit rate even as it reduced its benchmark lending rate to a record low of 0.25 percent, and Governing Council member Jens Weidmann has warned against further loosening of monetary policy.
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