Courtesy of Mish.
The ECB is now pondering monetary insanity: ECB’s Coeure says negative bank deposit rate an option
Cutting the deposit rate the European Central Bank offers lenders in the euro zone below zero is an option, ECB Executive Board Member Benoit Coeure said on Friday.
Speaking in Mexico, Coeure said the bank needed to take the rate down 25 basis points to zero to match its cut in the reference rate.
He said policymakers would need to consider whether it could take the deposit rate below zero, which would mean the central bank would start charging banks for the privilege of parking spare cash in the ECB.
“It’s still possible,” Coeure told students at an event in Mexico City. “It’s true that we are hitting a psychological limit at zero. And it’s unclear whether markets can function at negative interest rates. Some of them can.”
“Some of them apparently can’t. So before making the next step, which would be moving the deposit facility to a negative yield, we’ll reflect about it,” he added.
Denmark introduced a negative interest rate this month and the ECB is watching closely how the move plays out.
Negative Rates in Denmark, Switzerland
The Wall Street Journal discusses Negative Rates in Denmark, Switzerland.
July 6, 2012
For the first time ever, the Danes cut one of their official interest rates to below zero on Thursday.
Struggling against a tide of foreign capital seeking a safe haven, the Danes are trying to keep their exchange rate from rising to the point of throttling domestic industry. Unfortunately, one way or another, the struggle to retain competitiveness is likely to be a forlorn hope.
Denmark’s certificate of deposit rate was chopped by a quarter point to where CDs now yield minus 0.2%. Which is to say holders of these certificates willingly pay the Danish government a fifth of a percentage point for Denmark to hold their money.
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