Thursday, June 5, 2014

‘The Era Of Negative Interest Rates Has Begun’

126px-European_central_bank_euro_frankfurt_germanyTo battle the evils of deflation and dis-inflation, the European central bank is blazing new trails:
The European Central Bank (ECB) took the unprecedented step Thursday by imposing a negative interest rate on banks for their deposits—in effect charging lenders to park money with it.
The move was part of a series of measures to combat the euro zone’s growth-sapping disinflation and give a push to its stuttering economic recovery.
Business Insider announced ‘The Era Of Negative Interest Rates Has Begun’ and noted:
Specifically, the ECB cut the deposit rate to -0.1%, from 0.0%, effective June 11.
This is a historic development, as it’s the first time a major central bank has cut any main interest rate to negative in a bid to spur lending and spending.
The idea is that if banks aren’t being rewarded with a good deposit rate by parking their reserves at the central bank, then they will be more likely to lend it to households and businesses.
This development, while perhaps something new in a de jure kind of way, is really not a significant change in the de facto status quo in which central banks, most notably the ECB and the Fed, are continually seeking to jumpstart economies by inflating the money supply. Of course, they’ve been trying to jumpstart things for nearly six years, but surely this latest move will work like a charm.

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