ECB considers negative deposit rate - Bloomberg

Reuters

FRANKFURT (Reuters) - The European Central Bank is considering making banks pay to deposit cash with it overnight, news agency Bloomberg said on Wednesday, citing unnamed sources.

With euro zone inflation well below the ECB's target level, the ECB cut interest rates to a new record low earlier this month and is open to the possibility of taking other steps to bring inflation closer to its desired level.

Bloomberg said that were the ECB to decide to take the deposit rate into negative territory from the current level of zero, it would consider an interest rate of -0.1 percent.

"We decline to comment," an ECB spokeswoman said, when contacted by Reuters about the story, in which Bloomberg cited two people with knowledge of the debate.

ECB President Mario Draghi said earlier this month that the central bank was "technically ready" for negative rates, if warranted by the economy.

Draghi's comments came after the ECB cut its main refinancing rate to a record low of 0.25 percent, but kept its deposit rate unchanged at zero.

On Tuesday, ECB Vice-President Vitor Constancio said that "of course" there would be downsides attached to a negative deposit rate "but policy decisions are always about trade-offs."

"It's not a perfect science, there are concerns of course," he added.

Cutting the deposit rate to below zero would take the ECB into uncharted waters and would burden banks by effectively charging them for holding money at the ECB.

The ECB is preparing to put top euro zone banks through rigorous tests next year, staking its credibility on a review that aims to build confidence in the sector.

Constancio said on Tuesday the ECB had discussed the possibility of quantitative easing (QE) - or asset purchases - but no technical planning work had taken place, though he added that "everything is possible".

(Reporting by Sakari Suoninen; Editing by Ruth Pitchford)

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