Any Interest?


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European Central Bank president Mario Draghi

The Telegraph reports:

As the euro area suffers from low inflation, the currency bloc’s central bank has elected to make cuts to interest rates. The European Central Bank (ECB) has cut its headline rate to 0.05pc, while taking it deposit rate to -0.2pc. Annual eurozone inflation stood at just 0.3pc in August, well below the ECB’s target of just below 2pc. The majority of economists polled by Bloomberg – 51 out of 57 – expected the ECB’s governing council to maintain its key rate at 0.15pc and its deposit rate at -0.1pc.

European Central Bank president Mario Draghi will hold a press conference at 1.30pm.

Lizards be lizarding.

European Central Bank slashes interest rates as eurozone suffers ‘lowflation’ crisis (The Telegraph)

Pic: Telegraph

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17 thoughts on “Any Interest?

  1. scottser

    fuks sake, it’s always a bleedin crisis. ‘too much money crisis’. ‘not enough money crisis’. ‘too much credit crisis’ etc.

    my savings are going back into the mattress. note to self – must get them changed into notes soon.

    1. Nej

      My thoughts exactly.

      It’s a war or a crisis. The level of sensationalism is beginning to leave everyone a little numb in general.

    1. jungleman

      Mortgage rate increases for variable rate mortgages are a possibility whenever trackers are reduced.

  2. Disasta

    I’ve no idea what this means, anyone? (I’ve no house and not much money so interest was never a topic of conversation or interest of mine)

    1. Mr. T.

      It means the decline of Europe is progressing and all future investment will be in China, Russia, Africa and South America.

      Billionaires can move at will. You can’t.

    2. collynomial

      In very simple terms, many people believe inflation (the increase in how much things cost) is a monetary phenomenon (how much money is out there). Likewise many people believe that some inflation is important.

      Part of this argument can be explained by example: If people thought the price of iPhones was going to be lower next month compared with this month, they might put off buying one until then. Apple unable to receive the money it gets for its iPhone sales invests less of that money in the next iPhone development, saving money by laying off workers. The next iPhone is delayed and research into technologies which would make everyone’s life better is halted. Likewise the workers who got layed off, not having a job allow their skills to soften a bit meaning if the economy does take off again, they may be less efficient.

      So one of the tools of monetary policy is the setting of the interest rate. In their day to day business banks borrow and lend to and from each other all the time. A bank may have to pay out more in a day than it has coming in. When a bank needs to borrow it agrees an interest rate with another bank and they do business. To guarantee the security of the financial system the ECB acts as a lender of last resort, that means if no other bank will offer a decent interest rate on a day to day loan, the ECB will step in. Likewise, if a bank finds itself flush with money at the end of a day’s business and cannot lend it to another bank to get interest, it can deposit that money at the ECB.

      Having the possibility to do business with the ECB at fixed rates, creates an incentive for banks to operate between those rates. Why should Peter borrow from Paul when the ECB’s money is cheaper? Likewise why would John deposit his money at the ECB when he can lend it Mary at a better rate?

      This interest rate also governs the amount that banks charge to customers. By having low interest rates on deposits, bank customers an encouraged to consume and invest in other financial vehicles. Likewise, by having low interest rates on loans, bank customers have a greater incentive to borrow, hopefully expanding their business rather than sinking them entirely into commodities and land.

      What is interesting about today’s cut is the following: The answer to the question “why would John deposit his money at the ECB when he can lend it Mary at a better rate?” is “Risk”

      The fact that the ECB has gone from negative interest rates (meaning banks lose money by depositing at the ECB) to even more negative interest rates implies that some banks preferred to lose small amounts of money on their deposits at the ECB than to lend to other banks and the ECB is still trying to discourage it.

      1. collynomial

        I realise I start of by saying ‘in very simple terms and then go on to go on and on.

        Just one thing, in the above, obviously, that’s like, just some basic monetary theory and there do exist several other branches of economic theory which are outside of the scope of the ECBs work and therefore can’t be controlled by setting interest rates.

  3. scundered

    As long as folk don’t go taking out big mortgages at the moment thinkin this is grand then they should… oh wait?

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