The European Central Bank's new zero deposit rate had an instant impact as it came into force, with banks more than halving the amount of cash parked there overnight and one ECB policymaker saying he expected the move to increase banks' lending.
The unprecedented deposit rate cut to zero means banks will now get nothing if they park cash at the ECB, and the bank hopes it will nurture a return of more significant interbank lending by encouraging banks to look for more profitable options.
Banks' reluctance to lend to each other for fear of not getting all their money back has prompted them to park money at the ECB. The sums they deposited there were boosted after the central bank unleashed over 1 trillion euros into the financial system with twin lending operations in December and February.
"Especially the fact that the deposit rate was reduced to zero provides an incentive for the banking system to look what alternatives there are to improve their earnings," ECB Governing Council member Josef Bonnici said on Thursday.
"This may lead to greater borrowing, especially in some member states," he told reporters on the sidelines of a central bank conference in Casablanca.
An increase in bank lending could breathe life into the flagging euro zone economy, which the ECB said in its monthly bulletin was weak and suffering from "heightened uncertainty" that was weighing on confidence.
Read more: http://www.reuters.com/article/2012/07/12/us-ecb-deposits-idUSBRE86B0AS20120712
No comments:
Post a Comment