ECB lowers deposit rate into negative territory for the 1st time
AP and AFP
June 6, 2014, 12:05 am TWN
FRANKFURT/NEW YORK -- The European Central Bank (ECB) on Thursday entered into unchartered territory in its battle against deflation, taking one of its key interest rates into negative territory for the first time.
The ECB said in a statement that it is lowering all three of its key interest rates, which have been on hold at record lows all this year.
The bank's decision-making governing council voted to lower the refinancing rate to 0.15 percent from 0.25 percent previously.
The interest rate on the marginal lending facility was trimmed to 0.40 percent from 0.75 percent.
And the deposit rate, the rate at which the central bank pays commercial banks for depositing their unused cash, was reduced from zero percent to minus 0.10 percent, an attempt to push them to lend that money, not hoard it.
The moves had been widely anticipated by the financial markets after leading ECB officials, including president Mario Draghi, repeatedly hinted at such measures in recent weeks.
Steps to Boost Inflation:
The actions contributed to a rally in European stock markets and a further fall in the value of the euro.
ECB President Mario Draghi also told a press conference that on top of those rate cuts, the ECB would:
— Offer long-term loans to banks at cheap rates until 2018. The targeted loans would be charged a fixed rate, meaning that the rate could not rise, even if the ECB raises its benchmark. That gives banks confidence they have cheap funding out through 2018. The loans would be capped at 7 percent of a bank's lending to companies.
— Start doing “preparatory work” on a program to buy batches of loans to small businesses in the form of bonds, a step to funnel more credit to companies through financial markets.
— Stop collecting weekly deposits aimed at offsetting the monetary effects of earlier bond purchases. That would leave an additional 175 billion euros in the financial system that banks could in theory use to lend to each other or to companies.