‘ECB negative rates not yet option’

Ewald Nowotny told reporters on the sidelines of a conference in Bratislava that a negative deposit rate was not on the table for now.

“I think the markets have over-interpreted the discussion yesterday,” said Nowotny, who sits on the ECB’s decision-making governing council.

“Of course, this is one of many options, but it is not an option that is relevant for the near future,” the central banker said.

At its regular monthly policy meeting on Thursday, held this month in Bratislava rather than Frankfurt, the governing council decided to cut its key rates to an all-time low but left the deposit rate unchanged at zero.

If the deposit rate were negative, the ECB would effectively charge banks to park their excess cash with it.

While such a move could persuade eurozone banks to lend to each other and the wider economy, ECB chief Mario Draghi has repeatedly admitted that it could give rise to “several unintended consequences”.

Nevertheless, Draghi appeared to hint on Thursday that the ECB was now “technically ready” to introduce such a move.

The ECB has three main interest rates — the “refi” rate on its main refinancing operations; the deposit rate, which is the interest paid to banks to park excess cash with the ECB; and the marginal lending rate, used as a last resort for banks unable to obtain funding in the wholesale market.

The deposit and marginal rates act effectively as the floor and ceiling for interest rates in the 17 country eurozone.

At its meeting on Thursday, the ECB left the deposit rate unchanged but decided to shave a quarter of a percentage point off the refi to a new historical low of 0.50 percent.
It also pared back the marginal lending rate by half a point to 1,00 percent.

There has been much debate about whether the ECB would cut the zero deposit rate further, because such a move would take the central bank into previously uncharted territory of negative interest rates.

On Friday, Nowotny said a close analysis of the possible “side-effects and psychological effects” would be needed first.
“So this is nothing that is of short-term relevance,” Nowotny insisted. — AFP.