In an unprecedented move, the European Central Bank (ECB) said it will not only lower interest rates to record lows, it would also begin charging interest for holding money in deposit accounts.
The ECB is trying to push banks to invest the cash they are currently hoarding. The central bank also announced a series of other measures to spur the European economy and avoid deflation:
- A cut in its benchmark interest rate to a record low of 0.15 percent, with conditions requiring banks to use that borrowed money to make business loans.
- A program to buy up some types of asset-backed securities that will also drive lending to small businesses.
- Long-term loans to banks at low rates until 2018.
The unprecedented moves are driven over fears of deflation, meaning a sustained, broad drop in prices, which can lead to a downward economic spiral. Europe’s inflation is at about 0.5 percent per year, well below the 2 percent that bank officials want.
Adolfo Laurenti, chief international economist for Mesirow Financial, discusses the moves and deflation worries with Here & Now’s Jeremy Hobson.
Guest
- Adolfo Laurenti, chief international economist for Mesirow Financial. He tweets @AdolfoLaurenti.
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