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ECB announces negative rate in bid to fight deflation

The rate at which the European Central Bank pays commercial banks for depositing their unused cash has been reduced from zero per cent to minus 0.10 per cent.

Image: financial symbols via Shutterstock

THE EUROPEAN CENTRAL Bank today entered into uncharted 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 central refinancing rate to 0.15 percent from 0.25 per cent previously.

The interest rate on the marginal lending facility was trimmed to 0.40 per cent from 0.75 per cent.

And the deposit rate, the rate at which the central bank pays commercial banks for depositing their unused cash, was reduced from zero per cent to minus 0.10 per cent.

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.

Draghi is scheduled to explain the bank’s reasoning at a news conference later, and is also expected to unveil additional policy measures to kick-start credit in the eurozone.

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