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 central refinancing 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.
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 explained the bank's reasoning at a news conference later and also unveil ed additional policy measures to kick-start credit in the 18 countries that share the euro.
‘This is a baby rate cut — a tweak to the policy stance,’ said RBS economist Richard Barwell, adding that Draghi needed to announce a bundle of measures to avoid disappointing markets, reported a news agency. ‘I think expectations are very high,’ Barwell added. ‘To exceed them, I
think he (Draghi) is going to have to talk up the prospect of asset purchases in the near future.’
Just hours before the ECB policy decision, a Bank of Japan policymaker sounded a warning, saying the euro zone should not take lightly the potential danger of slipping into a Japan-style deflationary period.
In an April 24 speech, Draghi set out three broad scenarios for ECB policy action and included the possibility of a broad-based asset-purchase programme in the event of a worsening of the medium-term inflation outlook.
The bank's decision-making governing council voted to lower the central refinancing 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.
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 explained the bank's reasoning at a news conference later and also unveil ed additional policy measures to kick-start credit in the 18 countries that share the euro.
‘This is a baby rate cut — a tweak to the policy stance,’ said RBS economist Richard Barwell, adding that Draghi needed to announce a bundle of measures to avoid disappointing markets, reported a news agency. ‘I think expectations are very high,’ Barwell added. ‘To exceed them, I
think he (Draghi) is going to have to talk up the prospect of asset purchases in the near future.’
Just hours before the ECB policy decision, a Bank of Japan policymaker sounded a warning, saying the euro zone should not take lightly the potential danger of slipping into a Japan-style deflationary period.
In an April 24 speech, Draghi set out three broad scenarios for ECB policy action and included the possibility of a broad-based asset-purchase programme in the event of a worsening of the medium-term inflation outlook.