FRANKFURT — The European
Central Bank cut its benchmark interest rate to a record low on Thursday and,
in an unprecedented attempt to stimulate the euro zone economy, said it would
begin charging interest on deposits held by the bank.
The so-called negative
deposit rate has never been tried on such a large scale and is a bid
to push down the value of the euro and encourage banks to invest excess cash
rather than hoard it in central bank vaults.
The European Central Bank cut
its benchmark interest rate to 0.15 percent from 0.25 percent, and the deposit
rate to minus 0.10 percent from zero. The rate cuts will take effect next week,
on June 11.
The central bank will also
begin offering four-year loans to banks at the benchmark interest rates, under
conditions meant to ensure that lenders use the money to issue loans to businesses.
For example, the central bank loans will be designed to discourage banks from
using the money to buy government bonds.
Mario Draghi, the central
bank president, said at a news conference that the central bank would begin
buying packages of loans to the euro zone private sector, known as asset-backed
securities. The measure is designed to push lending to small business, but the
effect could be limited because the number of securities that qualify is
relatively small.
On news of the new measures, the euro
currency declined somewhat against the dollar — which was one of the aims of
the central bank’s actions. The weaker currency could help make euro zone
exports cheaper, and therefore more competitive, on global markets.
The interest rate cuts, including
the move to a negative rate on deposits, had become all but certain after data
earlier in the week showed that inflation in the euro zone fell to an annual
rate of 0.5 percent in May, a level considered perilously low.
The fear is that the minuscule rises
in wages and prices could lapse into outright declines — an economically
debilitating condition known as deflation that is characterized by a downward
spiral of prices, corporate profits and hiring. Deflation has already plagued
the economies of several of the weaker euro zone countries, including Greece.
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