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News - 5 June 2014

European Central Bank looking to cut interest rates

 

 
Expectations are running high that the European Central Bank (ECB) will loosen its monetary policy at its meeting on Thursday.
 
It is thought the ECB could introduce negative rates on deposits, in an effort to boost bank lending. This would mean banks would pay to keep money at the central bank, rather than receiving interest.
 
Stuart Coleman, Manager of the Tax Department of ABDS comments:
“On Tuesday, figures showed that inflation fell to 0.5% in May, considerably below the ECB's goal of just below 2%. This has raised the threat of deflation, in which growth essentially grinds to a halt because consumers put off spending in the belief that prices will fall further. Likewise, investors stop investing.”
 
At 0.25%, the benchmark interest rate is already low. But some economists feel the ECB will cut it again, possibly to 0.1%.
 
Stuart again:
“Even though interest rates are low, the commercial banks are still reluctant to pass them on to their customers, mainly because they remain cautious about lending. The ECB could cut the rate it pays on deposits from the banks to below zero. That in effect means the banks pay the ECB for keeping their money, creating an incentive for the banks to lend that money elsewhere, ideally to businesses, so that growth can be boosted.”
 
Jan Randolph, head of sovereign risk at IHS Global Insight said: "The thing to watch out for is additional measures to circumvent the banks - funding for lending for example. The 
ECB may provide credit to banks as long as they provide that to the real economy."
 
If you need any help and advice on Business Financial Planning and Development, don’t hesitate, contact Lavinia Newman, Stuart Coleman or Tonmoy Kumar NOW to discuss how ABDS can help in all your Business planning.
 
ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900 E-mail: abds@netaccountants.net
 
Brilliant with numbers  
Great with people  
Clear and precise with advice
Timely and cost effective
In touch with issues that face our clients
Mindful of our client’s long term strategic goals
 
Helping Your Business is Our Business

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