Policy makers hope that the measure, obliging banks to pay to hold a liquidity cushion, would prompt them to lend cash to companies and households instead, the people said. At the same time, a negative deposit rate also risks curbing banks’ profit as loan rates fall while the institutions may be unable to pass negative rates onto depositors.
By cutting by less than a quarter-point, the central bank could test the policy while minimizing disruption to the financial system, one of the people said. The ECB’s next interest-rate decision will be announced on Dec. 5. Denmark currently has a deposit rate of minus 0.1 percent.
It's interesting that Europe is considering this out of the box maneuver. Could it mean that deflation is much more of a problem in Europe than we already think?
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