Courtesy of Mish.
On Thursday, ECB president Mario Draghi lowered the deposit rate on money parked at the ECB to -0.4% from -0.3%. Draghi also cut the main refinancing rate by 5 basis points to 0%.
How low can he go? Is there a limit?
There is indeed a practical limit to negative interest rate madness, and it’s likely we have already hit that limit. Let’s investigate why.
Euribor Limit
All hell would break loose if rates fell lower than -1.0%, and perhaps well before that. This has to do with Euribor.
What is Euribor?
Euribor is the rate offered to prime banks on euro-denominated interbank term loans. It is based on the average interest rates of about 50 European banks that lend and borrow from each other.
Euribor Rates
