ECB Weighs Minus 0.1% Deposit Rate with Unprecedented Cut
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(Updated - November 20, 2013 10:44 AM EST)
The European Central Bank (ECB) may take an unusual step if further euro-zone easing is required.
Bloomberg today said ECB might consider smaller-than-normal cut if officials see taking rates into negative territory as being an option Commercial lenders would see rates drop from flat to minus 0.1 percent, which would be the first time the bank adjusted rates by less than a quarter percent since its inception.
While the idea has been mulled by Governing Council members, consensus on the matter is yet to be reached. The Council is holding a mid-month meeting in Frankfurt this week.
Some officials considering the idea believe that providing the extra cushioning to banks would prompt more lending to businesses and households, though there is a risk that banks' profit margins could tighten with the negative rate as loan rates come down as well.
Cutting the rate by less than the 0.25 point move typically seen would allow officials to test the policy out without putting too much stress on the financial system.
Earlier this month, the ECB cut its lending rate to a record low of 0.25 percent, but left its benchmark rate unchanged.
Traders are keeping an eye on key foreign exchange parings as well as European bank shares as the policy remains up in the air.
The European Central Bank (ECB) may take an unusual step if further euro-zone easing is required.
Bloomberg today said ECB might consider smaller-than-normal cut if officials see taking rates into negative territory as being an option Commercial lenders would see rates drop from flat to minus 0.1 percent, which would be the first time the bank adjusted rates by less than a quarter percent since its inception.
While the idea has been mulled by Governing Council members, consensus on the matter is yet to be reached. The Council is holding a mid-month meeting in Frankfurt this week.
Some officials considering the idea believe that providing the extra cushioning to banks would prompt more lending to businesses and households, though there is a risk that banks' profit margins could tighten with the negative rate as loan rates come down as well.
Cutting the rate by less than the 0.25 point move typically seen would allow officials to test the policy out without putting too much stress on the financial system.
Earlier this month, the ECB cut its lending rate to a record low of 0.25 percent, but left its benchmark rate unchanged.
Traders are keeping an eye on key foreign exchange parings as well as European bank shares as the policy remains up in the air.
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