Possibility of negative ECB deposit rates 'not relevant' for now

Friday 03 May 2013 11.59
Mario Draghi yesterday said the bank was technically ready to cut deposit rates
Mario Draghi yesterday said the bank was technically ready to cut deposit rates

The possibility the European Central Bank might cut its deposit rate below zero is not relevant for now, ECB policymaker Ewald Nowotny has said.

ECB President Mario Draghi said yesterday that the ECB was "technically ready" to cut the deposit rate from zero percent, meaning it would start charging banks for holding their money overnight.

The comments triggered speculation the central bank was preparing ground for negative rates - expectations that Mr Nowotny sought to dampen.

"Markets have over-interpreted the discussion yesterday," Mr Nowotny told reporters in Bratislava.

"Of course, this is one of many options. But it is not an option that is relevant in the near future ... this is nothing that is of short-term relevance."

The euro rose to a session high against the dollar after Mr Nowotny's remarks.

Cutting the deposit rate below zero could encourage banks to lend out money rather than hold it at the ECB, potentially easing a logjam in credit markets that has acted as a brake on economic growth in the euro zone.

But it would also probably have a big impact on banks' own operations and major implications for funding and bond markets.

Mr Draghi admitted a move into negative rates could have unintended consequences, but said the ECB could cope with these - a departure from his previous statements.

Another ECB policymaker, Finland's Erkki Liikanen, told CNBC television that while the ECB was technically ready to cut below zero, there was nothing different in yesterday’s discussions about the deposit rates to previous Governing Council meetings.