Thursday 29 September 2016

ECB cuts key interest rate to new low of zero but bad news for savers

Ailish O'Hora and Donal O'Donovan

Published 10/03/2016 | 12:56

ECB president Mario Draghi
ECB president Mario Draghi

THE European Central Bank has cut the eurozone key interest rate to a new record low of zero from 0.05pc.

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The move has surprised many analysts in its first cut since 2014.

It will also be a small boost for those on tracker mortgages whose rates are linked to the ECB figure.

But it was a bad move for savers as the bank also cut its deposit rate to minus 0.4pc with more stimulus expected to be announced this afternoon.

It also expanded its quantitative easing asset-buying program to 80 billion euros a month from €60bn and cut its deposit rate to -0.4pc, charging banks more to keep their money with the ECB.

The moves - which knocked the euro down 1pc against the dollar - reflect the ECB's struggle with falling inflation expectations and worries about ultra low price growth.

Borrowing costs for big business are set to fall and the euro has already weakened after the ECB beefed up emergency measures aimed at reviving economic growth.

Ironically the promise of cheaper access to finance for the biggest European companies came as official figures here confirmed that the Irish economy grew at a boomy rate last year of 7.8pc

European Central Bank (ECB) presumed Mario Draghi cut the interest it pays banks deeper into negative territory today - it will kow cost banks 0.04pc to leave money on deposit with central banks.

Negative interest rates are supposed to drive cash into the real economy, but are proving controversial.

The ECB also boosted the size if it's so called quantitative easing (QE) programme by a third to €80bn a month. Under QE the central bank has committed to buy up financial assets on the markets in a desperate effort to boost boost credit more widely in the eurozone economy.

The latest expansion will see bonds issued by companies regarded as less likely to default, so called investment grade issuers, added to the purchases. Borrowing costs for governments, whose bonds have been bought up to now, have collapsed since QE was launched last year.

(Additional reporting Reuters)

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