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Euro Plunging On A Report That The ECB Is Considering A Negative Deposit Rate

Matthew Boesler
mario draghi Jose Manuel Barroso

REUTERS/Kai Pfaffenbach

Bloomberg News is reporting that the European Central Bank may take the deposit rate into negative territory (from its current 0.0% level) if more monetary easing is needed in the eurozone, and the euro is plunging.

Right now, the euro is trading around 1.3480 against the dollar versus levels around 1.3540 prior to the report crossing the wires (down 0.4% on the day).

Bloomberg News correspondents Jana Randow and Jeff Black have the scoop:

The European Central Bank is  considering a smaller-than-normal cut in the deposit rate if  officials decide to take it negative for the first time,  according to two people with knowledge of the debate.

Policy makers would reduce the rate for commercial lenders  who park excess cash at the ECB to minus 0.1 percent from zero,  said the people who declined to be identified because the talks  aren’t public. It would be the first time the central bank has  adjusted interest rates by less than a quarter of a percentage  point. The concept, which has been discussed by Governing  Council members, doesn’t yet have a consensus, the people said.

The upshot, according to Randow and Black: " 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."

ECB president Mario Draghi said at the ECB's November policy meeting that the central bank was "technically ready" to take the deposit rate negative.

The chart below shows the drop in the euro-dollar exchange rate.



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