“Thursday’s meeting of the European Central Bank’s rate-setting committee could mark a key moment in the evolution of the euro zone debt crisis, as a growing number of economists predict that it will vote to cut interest rates again.
ECB President Mario Draghi has made several bold decisions in his first year in charge, notably the pledge to support struggling states through bond buying viaOutright Monetary Transactions(OMTs), and an interest rate cut could be the next.
A cut would make the ECB’s deposit rate, currently 0, negative – effectively charging companies to deposit money. While this could mean that banks put their money to work elsewhere, it could also mean that ordinary savers have less incentive to put money aside.
The headline refinancing rate is currently 0.75 percent, but at the moment this has less effect on short-term borrowing than the deposit rate because cheap ECB loans have already made borrowing money less expensive….”
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