European Central Bank president Mario Draghi has introduced
negative interest rates. Photo by Reuters.
The European Central Bank (ECB) has introduced a raft of
measures aimed at stimulating the euro zone economy, including
negative interest rates and cheap long-term loans to banks.
It cut its deposit rates to banks from zero to -0.1% to
encourage banks to lend to businesses rather than hold on to
The ECB also cut its benchmark interest rate to 0.15% from
Craigs Investment Partners broker Chris Timms said the ECB
was the first major central bank to introduce negative
It had been tried before in smaller economies. Sweden and
Denmark, both outside the single currency zone, attempted to
use negative rates in recent years with mixed results.
ECB president Mario Draghi also announced other measures.
Long-term loans would be offered to commercial banks at cheap
rates until 2018. The loans were capped at 7% of the amount
the individual banks in question lent to companies.
''The more banks lend to companies, the more money they can
borrow cheaply from the ECB,'' Mr Timms said.
''It is also doing preliminary work that could lead to buying
bundles of loans that were made to small businesses in the
form of bonds. This is being seen as a step towards providing
companies with credit through the financial markets.''
Mr Draghi said in a statement the ECB's policymakers
unanimously agreed to consider more unconventional measures
to boost inflation if it stayed too low.
However, the central bank stopped short of instituting a
large asset-buying programme like the quantitative easing
undertaken by the United States Federal Reserve.
Mr Draghi insisted more would be done, if necessary.
Even though some of the measures, like the move to negative
rates on deposits, were expected, European shares moved
higher on the ECB announcement, Mr Timms said.
Harbour Asset Management analyst Christian Hawkesby said the
New Zealand dollar rose to US85c after the announcement and
should remain relatively elevated while the Reserve Bank
remained the lone central bank lifting official interest
''More generally, we believe the fact the ECB is taking
further measures is a useful reminder of the massive policy
support global markets are still receiving, which should be
supportive for global growth and risk assets, such as global