Partly Cloudy

Partly Cloudy

max temp: 21°C

min temp: 12°C

ESTD 1874 Search

Economy: ECB slashes interest rates in bid to avoid eurozone deflation

13:22 05 June 2014

The Bank of England again left its interest rate on hold at 0.5% today.

The Bank of England again left its interest rate on hold at 0.5% today.

The Bank of England again left UK interest rates on hold today but the European Central Bank slashed its benchmark rates in a bid to prevent the the eurozone slippling into deflation.

shares

The ECB cut its lending rate to just 0.15%, from 0.25% previously, and in a further attempt to boost economic activity it set its deposit rate at minus 0.1%.

This means that, rather than receiving interest on deposits with the ECB, banks will have to pay to lodge money there, the aim being to encourage banks to lend to businesses instead and so stimulate growth.

The Bank of England’s Monetary Policy Committee (MPC) meanwhile agreed to leave its rate at 0.5%, where it has been for five years, despite rumblings that some members are edging closer to voting for an increase.

The quantitative easing (QE) programme of asset purchases, pumping money into the economy, also remained unchanged, at £375billion.

Bank of England policy-makers are not yet ready to raise rates despite the surge in house prices, with new figures showing that they increased at their strongest month-on-month pace since 2002 in May.

In contrast, their counterparts at the ECB fear the possibility of the eurozone plunging into a damaging spiral of falling prices, with an unexpectedly sharp drop in inflation to 0.5% in May adding to the threat.

Low inflation makes it difficult for individuals and governments who have borrowed money to reduce debts and deflation can stifle growth as consumers delay spending.

Meanwhile, eurozone unemployment remains stubbornly high at 11.7% and growth for the first quarter has been confirmed at a paltry 0.2%.

The ECB interest rate cut was widely expected. Howard Archer, chief UK and European economist at IHS Global Insight, said it was “thoroughly justified by the mounting risk of persistent very low eurozone inflation morphing into deflation”.

The reduction by 0.1% “may be seen on the tentative side”, he said, but added: “Despite being widely anticipated and in some quarters criticised for occurring too late, it is still a bold and unusual move by the ECB to take its deposit rate into negative territory.“

However, Schroders European economist Azad Zangana argued against the deposit rate cut. “We expect banks to simply pass on the costs to households and businesses, either by charging fees for savers, but more likely through higher interest rates on new borrowers the opposite of what the ECB is trying to achieve” he said.

Carsten Brzeski of ING Bank said the ECB had “entered unchartered new territory in its quest to support the eurozone economy”.

“Will it help to kick-start the economy? Probably not, but at least it demonstrates the ECB’s determination and ability to act,” he said.

shares

1 comment

  • Here we have yet even more proof that the EU is 'failing' !, yet we are still putting in £53 million a day to belong to this 'Restrictive Club' !, the British Tax Payer cannot afford it !, we apparently have no money for any real investment in our Infrastructure, Roads or Railways.....this is why !!

    Report this comment

    freedomf

    Thursday, June 5, 2014

The views expressed in the above comments do not necessarily reflect the views of this site

EDF workers are unhappy over pay.

Hundreds of workers at energy giant EDF are to stage a 24-hour strike in a row over pay.

Amos Smith who is launching a new yoghurt called Mossy's from a secret family recipe.

A popular yogurt made to a secret family recipe has been revived by a young food entrepreneur.

Land next to Burger King is for sale

Tesco, Mothercare and Toys R Us could soon have a new neighbour at Copdock Mill

A city worker looks at a stock ticker screen at the London Stock Exchange in the City of London.

Volatile stock market conditions took their toll again today as the FTSE 100 Index plunged after sharp gains in the previous session.

The Director General of the British Chambers of Commerce, John Longworth, has met with the Suffolk Chamber of Commerce in Ipswich to hear of their work delivering support to firms across the region.

The Director General of the British Chambers of Commerce, John Longworth, met with the Suffolk Chamber of Commerce in Ipswich to hear of their work delivering support to firms across the region last week.

Sainsbury's supermarket was only one of Britain's big four supermarkets to grow sales in the last three months - but still saw its number two spot in the sector retaken by Asda.

Sainsbury’s was the only one of Britain’s big four supermarkets to grow sales in the last three months - but still saw its number two spot in the sector retaken by Asda, according to latest industry data.

Family law expert Georgina Hall, now a partner at Prettys

East Anglia law firm Prettys, which has offices in Ipswich and Chelmsford, has announced the promotion of family law expert Georgina Hall to partner, bringing the total number of partners in the firm to 10.

Poundlands £55 million acquisition of rival 99p Stores has provisionally been given the green light.

Poundland’s £55 million acquisition of rival 99p Stores has provisionally been given the green light.

RSA Insurance Group chief executive Stephen Hester, as the More Than owner said it was willing to back a £5.6 billion takeover bid from Swiss rival Zurich after its suitor put forward a proposed offer.

More Than owner RSA Insurance said it was willing to back a £5.6 billion takeover bid from Swiss rival Zurich after its suitor put forward a proposed offer.

Ipswich Waterfront

Developer John Howard is about to go out to tender to select the building company to complete the Waterfront tower that has become known as `The Winerack.’

Most read

Most commented

Topic pages