European Central Bank Launches Negative Interest Policy Experiment

118167478The European Central Bank (ECB) has now done something most of have never seen before. It has adopted its own quantitative easing method by adopting at least a partial negative rate environment. Mario Draghi and his team lowered the bank deposit facility rate to -0.10% from 0.00% on Thursday. The refinancing rate was cut to 0.15% from 0.25%, and the marginal lending facility rate was cut to 0.40% from 0.75%.

All of these rate cuts will take effect on June 11. The real question is whether this was enough of quantitative easing for the markets. Last week the hopes were that Draghi would adopt a more serious quantitative easing strategy to spur growth while simultaneously trying to slay the beast of deflation.

Unfortunately, the ECB does not package many statements outside of the decisions. The press conference starts slightly later, and a separate press release will be made on the details of implementing the negative deposit facility rate.

As a reminder, most of us have never really seen a negative rate policy. The move to fight deflation is considered by most economists as even more important than spurring growth.

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Filed under: Economy
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