In an attempt to stimulate the eurozone economy, the European Central Bank introduced a negative interest rate of 0.1 percent. The ECB also cut the deposit rate for banks from zero to -0.1 percent and reduced the benchmark interest rate to 0.15 percent from 0.25 percent. The ECB is hoping these changes will encourage banks to grant more business loans instead of stockpiling their capital. In addition to these cuts, the ECB will offer packages of cheap long-term loans to banks worth up to €400bn. ECB President Mario Draghi said that European lawmakers may consider further cuts as a measure to boost inflation and business lending. The ECB is the first major central bank to impose negative interest rates.
“Despite being widely anticipated and in some quarters criticized for occurring too late, it is still a bold and unusual move by the ECB to take its deposit rate into negative territory,” said Howard Archer, chief UK and European economist at IHS Global Insight. “There has to be considerable uncertainty as to how effective negative deposit rates will turn out to be.”
