The European Central Bank keeps interest rates unchanged

 
Jasper Jolly
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ECB president Mario Draghi has defended ultra-low rates repeatedly (Source: Getty)

The European Central Bank (ECB) is holding interest rates steady, continuing its current policy of ultra-low rates since the Eurozone crisis.

The ECB has also announced that it will extend quantitative easing until the end of 2017, although it will taper the size of the stimulus.

The interest rate for the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility remained at 0.00 per cent, 0.25 per cent and -0.40 per cent respectively.

The last change in interest rates came in March 2016, when the Bank made further cuts in one final attempt to use traditional monetary policy tools to stimulate the Eurozone economy.

ECB president Mario Draghi has repeatedly defended the ultra-loose monetary policy, saying that it had played an integral part in Europe’s economic recovery, however fragile it remained.

Inflation has started to rise in the Eurozone towards the ECB’s target of near but below two per cent, but still remains well short at 0.6 per cent.

How to understand the European Central Bank's interest ratesĀ 

The European Central Bank (ECB) has three rates:

  • The main refinancing operations: what banks pay to borrow from the ECB

  • The rate on the marginal lending facility: the rate at which banks lend to each other overnight

  • The deposit facility: the rate banks receive to leave money with the ECB overnight

The ECB has kept interest rates unchanged since March 2016, when all three were cut. They have since stayed at zero per cent, 0.25 cent and minus 0.40 per cent respectively.

If a rate is negative the bank will pay the ECB (rather than receiving money in interest). Negative rates are intended to encourage banks to lend money to businesses rather than holding it themselves or, as is the case with the deposit facility rate, depositing it with the ECB overnight.

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