The European Central Bank (ECB) has decided to charge banks that deposit money with it instead of paying interest out.
Mario Draghi, the President of the ECB, and the rest of the bank’s governing council have decided to cut the deposit rate from 0percent down to -0.1 percent. By doing this it is hoped that banks will prefer to lend the money out to consumers and businesses and earn interest rather than be charged to place it in the ECB vaults.
The ECB also cut its main interest rate from 0.25 percent down to 0.15 percent.
These two measures may help enable the Eurozone to stave of deflation and get their economy on the move again, especially after the recent unexpected news that the Eurozone inflation rate had fallen to 0.5 percent.
Commenting Nawaz Ali, UK Market Analyst, Western Union Business Solutions, said:
"For the euro to suffer a more aggressive fall, President Mario Draghi may have to do more with unconventional tools.
"What is clear though is that the ECB is taking significant steps backwards at a time where the Bank of England and Federal Reserve are taking steps forwards towards tighter monetary policy.
"This increasing deviation between the BOE and ECB suggests sterling/euro could break above 1.2500 over the coming weeks."
Tim Graf, head of macro strategy – Europe at State Street said:
"The reaction is interesting in that, even though there was no surprise whatsoever about the 12.45 events, the EUR is weakening and Bunds/BTPs rallying. The risk that we all talked about was that this was fully priced and you could have seen the reverse happen after what was largely a consensus result. For me, this weights the risks for the press conference more towards EUR weakening. In other words, if the bare minimum versus expectations results in weaker euro and higher bonds, surely whatever non-standard policies to come should add to the downside pressure in the EUR."