ECB Cuts Interest Rates, Introduces Negative Deposit Rate

Frankfurt (June 5) Following its monthly monetary-policy meeting Thursday, the European Central Bank cut interest rates on its main refinancing operation at by 10 basis points, bringing it down to 0.15%. As expected the central bank introduced a negative deposit facility rate with a 10 basis point cut, bringing it to minus 0.10%

The ECB also dropped its marginal lending facility rate by 35 basis points to 0.45%.

Economists were almost unanimous in their expectations that the ECB would cut interest rates as inflation remains stubbornly low.

On Tuesday, Eurostat said annual consumer inflation fell to 0.5% in May, a drop from April’s reading of 0.7% and well below the central bank’s target of 2%.

Investors will now wait until 8:30 a.m. EDT for the monthly press conference hosted by ECB President Mario Draghi. Draghi will also present updated staff projections for 2014 to 2016. Market players will be waiting to hear if he announces some new long-term refinancing operation to help stimulate the credit market.

Some economists have pointed that a new LTRO would need to have some pretty strong incentives to attract the banks, which are currently paying off the round of loans from 2011.