ECB widens negative rates

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The European Central Bank has cut another 10 basis points across all its key rates, taking the Deposit Facility rate to -0.20%, the Refinancing rate to 0.05%, and its Marginal Lending rate to 0.30%.

The Deposit Facility rate went negative earlier this year, explained by the bank as a way to make it “less attractive for people to save and more attractive to borrow”.

Additionally, the Bank said it would engage in buying asset backed securities starting in October, with underlying assets consisting of claims against non-financial private sector assets.

“This reflects the role of the ABS market in facilitating new credit flows to the economy and follows the intensification of preparatory work on this matter, as decided by the Governing Council in June. In parallel, the Eurosystem will also purchase a broad portfolio of euro-denominated covered bonds issued by MFIs domiciled in the euro area under a new covered bond purchase programme (CBPP3). Interventions under these programmes will start in October 2014. The detailed modalities of these programmes will be announced after the Governing Council meeting of 2 October 2014. The newly decided measures, together with the targeted longer-term refinancing operations which will be conducted in two weeks, will have a sizeable impact on our balance sheet.”

Bank president Mario Draghi said in his statement today announcing the cuts that the Bank had been forced to act in the face of unexpectedly weak growth in the eurozone in the second quarter this year.

He added: “With regard to the third quarter, survey data available up to August indicate a loss in cyclical growth momentum, while remaining consistent with a modest expansion.”

Eurozone GDP growth prospects for 2014 and 2015 have been revised downwards.

 

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