#EuropeanCentralBank #imposesnegativeinterestratesonbanks Central bank hopes the #unprecedentedmove will #encouragebanks to #lendmoretoconsumersandbusinesses to #gettheeconomymoving Share 170 Email Angela Monaghan theguardian, Thursday 5 June 2014 13.30 BST Jump to comments (377) Link to #video: #ECB #introducesnegativeinterestrates The European Central Bank has made the unprecedented move of charging banks to deposit money in a dramatic attempt to inject life into the eurozones flagging economy and ward off the threat of a damaging deflationary spiral. In what marks an historic first for the troubled region, president Mario Draghi and his colleagues on the governing council cut the deposit rate to -0.1% from zero, meaning banks will now have to pay for the privilege of parking their money with the ECB. It was decribed as a bold and unusual move by Howard Archer, chief European and UK economist at IHS Global Insight. The central bank is hoping the move will encourage banks to lend more to consumers and businesses to get the economy moving. It is the first time the ECB has imposed a negative deposit rate. Carsten Brzeski, economist at ING, said: The ECB just did it and entered new uncharted territory in its quest to support the eurozone economy. Will it help to kick-start the economy? Probably not, but at least it demonstrate the ECBs determination and ability to act. The central bank also cut its main interest rate to a new record low of 0.15% from 0.25%. The action was widely predicted by analysts and markets amid a mounting threat that persistently low inflation in the 18-nation eurozone could lead to outright deflation. It is possible that Draghi will announce further measures when he gives his monthly press conference at 1.30pm UK time to further boost the economy. Brzeski said: At the press conference we will know whether the ECB only delivered a bare minimum or whether we will have to cite German poet Wilhelm Busch: this was the initial trick, but the second follows quick. Data published by the European Unions statistics office revealed an unexpected fall in the annual rate of eurozone inflation to 0.5% in May from 0.7% in April, which appealed to seal the deal for more ECB stimulus. With a lack of inflationary pressure amid a weak economic recovery, the fear is the eurozone will slide into a destructive deflation trap, where consumers and businesses off spending amid expectations that prices will fall further still. The eurozones recovery suffered a setback in the first quarter of the year, with growth halving to 0.2% from 0.4% in the fourth quarter of 2013. theguardian/business/2014/jun/05/european-central-bank-cuts-deposit-rates?guni=Network%20front:network-front%20main-3%20Main%20trailblock:Network%20front%20-%20main%20trailblock:Position6
Posted on: Thu, 05 Jun 2014 16:14:10 +0000