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European Central Bank ECB cuts benchmark interest rate to 0%

The 0% interest rate is expected to stimulate growth in Europe, while the cut in the deposit rate means it is now more expensive for banks to hold on to money rather than lending it to customers.

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 ECB president Mario Draghi play

 ECB president Mario Draghi

(Reuters)

The European Central Bank has cut its benchmark interest rate to an historic 0 percent, from 0.05 percent and cut its bank deposit rate from minus 0.3% to minus 0.4%.

The 0% interest rate is expected to stimulate growth in Europe, while the cut in the deposit rate means it is now more expensive for banks to hold on to money rather than lending it to customers.

Starting April, ECB will also boost its quantitative easing programme by €20bn, to €80bn per month.

Read full details of the latest measures announced by the Monetary Policy Committee of the ECB:

(1)    The interest rate on the main refinancing operations of the Eurosystem will be decreased by 5 basis points to 0.00%, starting from 16 March 2016.

(2)    The interest rate on the marginal lending facility will be decreased by 5 basis points to 0.25%, with effect from 16 March 2016.

(3)    The interest rate on the deposit facility will be decreased by 10 basis points to -0.40%, with effect from 16 March 2016.

(4)    The monthly purchases under the asset purchase programme will be expanded to €80 billion starting in April.

(5)    Investment grade euro-denominated bonds issued by non-bank corporations established in the euro area will be included in the list of assets that are eligible for regular purchases.

(6)    A new series of four targeted longer-term refinancing operations (TLTRO II), each with a maturity of four years, will be launched, starting in June 2016. Borrowing conditions in these operations can be as low as the interest rate on the deposit facility.

This last measure, TLTRO, is a long-term refinancing option. It allows banks around Europe to borrow cheaply from the ECB. Interest rates for these loans could be as low as the deposit rate. Now that rate has been cut to -0.4 per cent, it means that the ECB is effectively paying banks to borrow its money.

 

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