7th June 2014

ECB takes unprecedented step to tackle low inflation

On 5 June, the ECB President Mario Draghi announced on a press conference that effective since 11 June the eurozone´s central bank lowers the main interest rate from 0.25% to only 0.15%. More importantly, also the interest rate on the deposit facility was lowered to -0.10%. This means that if commercial banks deposit money with the central bank (more than required), they will have to pay for it, instead of earning some interests. This step was taken in order to motivate the banks not to deposit the disponible cash with the central bank, but to lend the money instead, thus supporting the recovery of the economy. The ECB became the first of the world´s major central banks to employ this measure. Lowered interest rates are also a way to tackle the low levels of inflation which amounted to 0.5% only in May. According to the ECB´s own target, it should be below, but close to 2%. President Draghi also announced that the ECB will not start quantitative easing, but is prepared to employ unconventional methods to tackle low inflation and support the recovery of the economy. One of such ways are longer-term loans at reduced rates. These steps were followed by criticism from Germany mainly. German MP Ralph Brinkhaus said the ECB sends the wrong signal. According to the MP, the eurozone needs structural reforms, not low interest rates.

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Members of the American Chamber of Commerce in the Czech Republic