8 June 2017

ECB should take a more decisive step away from negative interest rates

“The European Central Bank (ECB) is starting to take baby steps towards an exit from its extremely expansive monetary policy,” said Michael Kemmer, General Manager of the Association of German Banks. “But given the positive and stable development of the eurozone economy and the evidently stable development of inflation, I would have liked to see more decisive action.”

“For the financial markets, the question is increasingly what the ECB will do next,” Kemmer continued. On the one hand, there were many arguments in favour of starting with a gradual tapering of its government bond purchases from next year. For banks in the eurozone, on the other hand, an end to negative interest rates was highly important.

This was because the risks and side effects of negative interest rates were extremely serious. “If the ECB believes that raising interest rates is only a viable option once the purchase programme has ended, it should at least introduce a threshold below which banks would not have to pay negative deposit rates on excess liquidity,” suggested the association’s General Manager. A threshold of this kind would reduce the unwanted side effects of the negative interest rate policy – on businesses, consumers and banks.


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