Thursday, June 05, 2014

THE ERA of negative interest rates has begun:

In a bid to counter weak growth and prevent deflation, ECB chief Mario Draghi has lowered main interest rates.

Specifically, the ECB cut the deposit rate to -0.1%, from 0.0%, effective from June 11, 2014.

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 refinancing rate was lowered by 10 basis points to 0.15% which was a slight disappointment.

Finally, the marginal facility interest rate was lowered by 35 basis points to 0.4%. This is the rate that banks pay to borrow from the central bank.

These cuts were largely priced in so markets have moved modestly higher in response to the news.