AFP, Berlin :
The ECB’s governing council is split over whether to cut interest rates again, minutes of their last meeting in Malta showed Thursday, with the issue surfacing as a potential tool to boost inflation.
The European Central Bank has deployed its heavy weapons to lift inflation, including launching a quantitative easing scheme to buy more than 1.1 trillion euros ($1.2 trillion) in sovereign bonds at a rate of 60 billion euros a month until at least September 2016.
But with inflation at zero in October, central bankers of the 19-member eurozone are mulling over whether to turn to other measures such as further lowering its key lending rate, which is already at a record low of 0.05 percent. According to minutes of their meeting on October 22, some central bankers raised the option of “further lowering policy rates, in particular the rate on the deposit facility”.
They noted that jurisdictions that have sent interest rates to negative levels “had not appeared to result in major difficulties or widespread substitution into cash”.
The ECB had cut the rate on its deposit facility — that is, for funds placed by banks at the central bank, to negative 0.2 percent in June 2014. The rate has remained at that level since. Meanwhile, banks have to actually pay the central bank to keep their cash.
However, there were also critics against a further rate cut, the minutes showed.
Those who were opposed argued that “a rate cut would venture further into uncharted territory and have repercussions on the functioning of markets and the behaviour of banks and customers”.
“For this reason, further technical staff and committee work was seen as necessary to assess the benefits and costs, particularly regarding the impact on money markets and on banks’ margins and lending capacity,” according to the minutes.
ECB chief Mario Draghi had warned last week that signs of a return to healthy inflation levels are fading, in what was seen as a new sign that the bank could ramp up its controversial asset purchase programme.
The ECB’s governing council is split over whether to cut interest rates again, minutes of their last meeting in Malta showed Thursday, with the issue surfacing as a potential tool to boost inflation.
The European Central Bank has deployed its heavy weapons to lift inflation, including launching a quantitative easing scheme to buy more than 1.1 trillion euros ($1.2 trillion) in sovereign bonds at a rate of 60 billion euros a month until at least September 2016.
But with inflation at zero in October, central bankers of the 19-member eurozone are mulling over whether to turn to other measures such as further lowering its key lending rate, which is already at a record low of 0.05 percent. According to minutes of their meeting on October 22, some central bankers raised the option of “further lowering policy rates, in particular the rate on the deposit facility”.
They noted that jurisdictions that have sent interest rates to negative levels “had not appeared to result in major difficulties or widespread substitution into cash”.
The ECB had cut the rate on its deposit facility — that is, for funds placed by banks at the central bank, to negative 0.2 percent in June 2014. The rate has remained at that level since. Meanwhile, banks have to actually pay the central bank to keep their cash.
However, there were also critics against a further rate cut, the minutes showed.
Those who were opposed argued that “a rate cut would venture further into uncharted territory and have repercussions on the functioning of markets and the behaviour of banks and customers”.
“For this reason, further technical staff and committee work was seen as necessary to assess the benefits and costs, particularly regarding the impact on money markets and on banks’ margins and lending capacity,” according to the minutes.
ECB chief Mario Draghi had warned last week that signs of a return to healthy inflation levels are fading, in what was seen as a new sign that the bank could ramp up its controversial asset purchase programme.
