European Central Bank council member Axel Weber said the ECB shouldn’t cut its main interest rate below 1 per cent and that he would rather keep the rate at which it accepts overnight deposits unchanged.
“I see the bottom line to which interest rates should fall at 1 per cent,” Weber, who also heads Germany’s Bundesbank, said at a press conference in Frankfurt today. “I don’t have a problem with lowering the deposit rate to zero, but I would prefer to leave it at 0.5 per cent.”
As the ECB’s main rate drops to record lows, officials are shifting attention to the deposit rate at which financial institutions can stash cash with the central bank overnight. The ECB cut the main refinancing rate, used as a benchmark in money-market operations, to 1.5 per cent last week.
President Jean-Claude Trichet said March 5 that the deposit rate, which it reduced to 0.5 per cent, is “very, very low.”
The overnight market rate that banks charge each other has drifted down towards the deposit rate since the ECB started offering unlimited funds to the financial system in October.
