What measures have been taken?
The European Central Bank (ECB) lowered its key interest rate to 0 percent. Eurozone banks can now borrow free money. That was very cheap when it stood at 0.05 percent.
In addition, the deposit rate has been further reduced from minus 0.3 to minus 0.4 percent. Banks stables at the ECB their excess cash, to pay for it. Now slightly more than before.
The banks complaining for some time about the ECB’s policy interest rates pressed down. That is their business model under pressure: banks lend often money with short term and lend it at higher interest rates again for a longer period
That’s why Mario Draghi Thursday announced a new instrument:. Banks that want money lending to businesses, can turn to the central bank uses the same loan rate and the deposit rate.
as further reduced to minus 0.4 percent, get banks money when they borrow money.
Finally, the buy-back program which has been running since March 2015, increased by 20 billion which are now issued 80 billion each month by the ECB of government bonds. Work is also underway on a buyback program of corporate bonds on that is more announced later.
What are the benefits?
The inflation, soaring prices , shall represent just below 2 percent. That is seen as most ideal by economists from central banks and is therefore the main objective of the ECB.
When inflation is low, as is the case, there is a risk of negative inflation or deflation . Deflation decrease product prices and wages for a longer period. That’s economic recovery in the way.
With money so cheap to make for the banks, it must be attractive to lend to consumers and businesses. If this happens on a large scale, it could give the sluggish economic recovery a boost in the eurozone.
also benefit countries with (high) public debt. The interest rate to be paid by government bonds to fall to a historically low level. And who is now a mortgage, also gets to borrow the possibility of money at a low rate.
What are the disadvantages?
The low interest rates also press savings rates down. In the four largest banks in the Netherlands, ABN AMRO, ING, Rabobank and SNS Bank depositors have been less than 1 percent return.
Pension funds are the victims. Who have to shorten due to the low interest rates. Funds are required to hold bonds in their investment portfolios, as they receive almost no returns.
It also warned that free money will lead to so-called bubbles in the stock and housing markets
No comments:
Post a Comment