ECB Introduces Negative Deposit Rates

June 5, 2014 Share Print 0

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.”

via BBC

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Alfonso Esparza

Senior Currency Analyst at Market Pulse

Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.