European Central Bank Cuts Rates to Record Low to Negetive

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At its June 5th meeting, the European Central Bank cut the main refinancing rate by 10 bps to 0.15 percent and the deposit rate to -0.1 percent, becoming the first major central bank to use negative interest rates.

Policymakers cut its benchmark refinancing rate by 10 basis points to 0.15 percent, starting from the operation to be settled on 11 June 2014. The interest rate on the marginal lending facility was also lowered by 35 basis points to 0.40 percent. But the big surprise was a 10 bps cut in the deposit facility to -0.10 percent, aiming to increase credit to the economy.

Extracts from Introductory statement to the press conference

"In pursuing our price stability mandate, today we decided on a combination of measures to provide additional monetary policy accommodation and to support lending to the real economy. This package includes further reductions in the key ECB interest rates, targeted longer-term refinancing operations, preparatory work related to outright purchases of asset-backed securities and a prolongation of fixed rate, full allotment tender procedures. In addition, we have decided to suspend the weekly fine-tuning operation sterilising the liquidity injected under the Securities Markets Programme.

The decisions are based on our economic analysis, taking into account the latest macroeconomic projections by Eurosystem staff, and the signals coming from the monetary analysis. Together, the measures will contribute to a return of inflation rates to levels closer to 2%. Inflation expectations for the euro area over the medium to long term continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2%. Looking ahead, the Governing Council is strongly determined to safeguard this anchoring. Concerning our forward guidance, the key ECB interest rates will remain at present levels for an extended period of time in view of the current outlook for inflation. This expectation is further underpinned by our decisions today. Moreover, if required, we will act swiftly with further monetary policy easing. The Governing Council is unanimous in its commitment to using also unconventional instruments within its mandate should it become necessary to further address risks of too prolonged a period of low inflation."

Basically the ECB interest rate is in negative . So does that mean you will loose money on your deposits ? Maybe its time to go back to the old days were money were kept safe in safe houses inside the home ...

Well, considering all the new rates and fees that some of the banks have put into place or considered I think that having the bank hold our money for us is currently in the process of becoming a honor we have to pay for isn't it? If we have to pay fees when we take it out and make transactions, buy the checks we send out, ect and the interest rate the bank is paying us is close to 0 are we losing money by having it in the bank?
My three sons have accounts in the same bank as us. The bank just merges with another one so we've all were supposed to get new debit cards. two of those cards are yet to arrive. Luckily we took most of our money out before they switched over so them not having a debit card the past month hasn't been that big of a deal. Hopefully they will listen to our advice and just keep a little over what they need to pay the bills in their accounts now that they have had this experience.

This is stupid. No one is going to pay the bank for a savings account. I call shannanigans.

a reply to: damwel

I'll get my broom.

They've been talking about doing this for a while. It's not a surprise.

originally posted by: maddy21

Basically the ECB interest rate is in negative . So does that mean you will loose money on your deposits ? Maybe its time to go back to the old days were money were kept safe in safe houses inside the home ...

No for you or me not much will change, maybe the interest on the mortage can get lower but not much anyways, sure interest payment on your money will get bit lower as well but not negative..

The banks loans money at the central bank, so no rent for them lending money which they lend out again for much more interest (%).

edit on 5-6-2014 by Plugin because: (no reason given)

If I read this correctly, this is to stimulate "so to say" credit to there economy. Not that your paying them to have a savings/checking account (it's not Merika!) but that the loan you pull from the bank for a new car/home whatever is paid back at a lower if non-existent intrest rate... Which doesn't really make sense because the banks will get there money some way, so instead of a high intrest rate and paying a big monthly note, you get a longer paid loan with lower notes.... Yes/No??? Please advise....

so you begin paying back principle immediately? and the bank gives a fraction of your payment back every month?

this is just the rate that banks pay other banks for loans more than likely the central banks who by way don't need money loan money so there is probably no real lose by given them money! I guess our money is so worthless now the central banks have to pay someone to take it off their hands?

From what I understand negative interest rates are a way of stimulating a stagnant economy. It is primarily aimed at banks who have to pay to keep large amounts of money from their customers in holding accounts. The way the bank avoids paying these charges is through increased lending. The banks have be competitive in the sense that all banks will try to avoid the charges through loans. This should result in easier lending criteria and lower rate loans as banks compete for your custom.

here's my (attempted) explanation or reason for this remarkably nonsensical ECB policy ....

the ECB is 'paying back' the USA Fed for lending/backstopping some $16 Trillion to bail-out the Insolvent European Banks with those phony currency swaps which was the only way for the EU-ECB to create money just like the USA Federal Reserve does.

the 'pay back' involves kicking the interest lower than US Treasuries so that there will be a massive shift from holding ECB & EU member Banks Bonds/Paper holdings which are now too under-performing to have ... all Europe and the world will necessarily shift into buy & hold the USA Treasuries & Bonds that pay higher interest

This can't trickle through to individuals investment accounts. It's bank-suicide. Any bank introduces negative interest rates and starts taking away peoples capitol and they'll instantly withdraw all of their funds and put it somewhere else. And none of the banks carry enough reserves to cope with all of the depositers wanting their money back at the same time.

It would make Black Rock look like a sunday school trip.

It's a mechanism aimed at bigger fish than us.

originally posted by: snarfbot
so you begin paying back principle immediately? and the bank gives a fraction of your payment back every month?

No, it does not work like that. The simplest way to understand what it all means is to hear it from the horses mouth.

ECB Base Rates

All quite sensible given that most countries in the Eurozone need a kick to get them going again.

Regards

The store of value function of money is being removed. Every centrally planned monetary event has the effect of decreasing the time one can hold money which is opposite to the store of value function. Europe has been doing it directly, bit by bit in our faces, Cyprus, negative interest rates. The U.S. is doing it indirectly by increasing the amount of dollars that exist with both credit/debt growth and QE/Belgium. They are all saying that one day they will reverse this obvious removal of the store of value function. If they don't then we will collectively lose money's role as a store value between getting paid and buying something else. Yet here we are still on the path to removing this vital function and wondering how long for?, and what will happen?

Capitalism requires perpetual exponential growth of the money supply or it enters a contraction spiral.

People who clamor for a static money supply actually, unbeknownst to them, are wishing to hasten its demise or complete decay back into feudalism.

You see, except for banks, every business out there, in its direct financial dealings with human beings, necessarily takes more money directly from people than it pays out directly back out to people.

The difference being the business's operating expenses towards other businesses (non-human economic agents).

The pizza parlor takes more money in from customers than it pays directly out to its employees, its landlord, its stock holders, its management etc.

The anchovy factory that supplies the pizza parlor takes more money in from the pizza parlor than it directly pays back out to its own employees, owners, management, landlord etc.

All businesses are like this, taking more money in than they directly pay out to people. Because all businesses also have running expenses towards other businesses. Their suppliers, subcontractors etc.

This financial shortfall has to be continuously created out of nothing at an ever increasing rate. And it is, by the banking-monetary-financial system.

Or else the people, as a whole, will eventually run out of money to spend. And the economy will collapse.

Of course, you could claim that there is an infinite regression, an infinite length supply chain a la Zeno's paradoxes. However, there is no such thing as an infinite length supply / logistics chain.

The alternative is to claim that the entire economy is actually one huge, closed loop. One huge, closed supply chain.

This is actually correct.

However, because at each and every single iteration of this huge, aggregate loop we have a higher total / aggregate price for the entire / aggregate economic production realized during that cycle, we soon reach a moment when more money has to be shifted in one single iteration of the loop for the loop to complete the cycle and begin anew is actually larger than the money supply.

So we arrived at the initial hypothesis you might have wanted to disprove. Only it's now clearly not a hypothesis but a conclusion.