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ECB-EUROZONE-BANK-RATE
ECB could compensate for side effects of negative rates: Draghi
FRANKFURT AM MAIN, March 28, 2019 (BSS/AFP) – The European Central Bank is
looking at ways to mitigate any side effects brought by negative interest
rates, its chief Mario Draghi said Wednesday, as banks complain that they
have been penalised by the measure aimed at boosting growth.
In a bid to keep cash flowing to the economy, the ECB has held interest
rates at record lows.
To encourage banks to lend, the Frankfurt institution has also kept the
current rate on deposits at minus 0.4 percent — meaning banks have to pay to
park liquidity at the ECB.
But banks have complained that the expansionary measure was eating up
their bottom line.
“We will continue monitoring how banks can maintain healthy earning
conditions while net interest margins are compressed,” said ECB chief Draghi
at a conference in Frankfurt.
“And, if necessary, we need to reflect on possible measures that can
preserve the favourable implications of negative rates for the economy, while
mitigating the side effects, if any.”
One possible mitigation measure could be the introduction of a threshold
above which banks would start paying negative interest rates to keep
liquidity at the ECB, AFP learnt.
Its advantage is that it would allow the overall interest rate to remain
unchanged, thereby maintaining its positive impact on the economy.
Draghi stressed however that low profitability at banks is “not an
inevitable consequence of negative rates”.
Rather, he cited ECB analysis that found that the best performing banks in
the eurozone share traits including their ability to slash the ratio between
cost and income.
BSS/AFP/HR/1000