The European Central Bank has just reduced interest rates and installed a negative rate on bank deposits for the first time in its history.
The bank cut its main lending rate to 0.15%, a new low, from the 0.25% rate held since November, and lowered its rate on emergency overnight loans by 35 basis points to 0.40%.
The ECB also dropped the rate on bank deposits parked overnight with the central bank to minus 0.1%, thereby charging commercial banks for keeping their money at the ECB. That will sure get the banks from letting cash pile up. I consider it one of the most aggressive moves towards accelerating price inflation in the last 50 plus years.
This is an extremely dangerous move, putting the eurozone on a major inflation path. Though it should be noted that the balances held by Eurozone banks at the ECB are just over 29 billion euros, while trillions of dollars sit at the Fed. If the Fed ever went negative that would be fireworks on steroids. -RW