The ECB Thinks That The European Financial System Could Withstand Even Lower Rates

The ECB thinks that the European financial system could withstand even lower ratesThe ECB published a 335-page paper written by the staff of the central bank

The ECB recently published a paper in which it reviews its monetary policy over the last 20 years. Among other points, the central bank says that interest rates in EMU countries could deepen further into negative territory before being counterproductive.

The paper, written by staff at the ECB, does not imply an official opinion and it points out that interest rates could go even as low as -1% in the EMU countries without the so-called reversal rate being reached, the point at which bank lending starts contracting and further lowering of interest rates becomes counterproductive.

The paper also warned that any scenario that required such a cut would also imply that there were serious disruptions in the economy and that negative interest rates would rise because banks would stop lending money due to their aversion to risk.

Although the 335-page paper was written by staff at the ECB, the effort was led by Massimo Rostagno, the director of monetary policy at the ECB, a key player in the decision making of the Governing Council and one of the architects of the latest stimulus measures.

Currently, the ECB ‘s main rate is 0%, its emergency rate is 0.25% and its deposit rate -0.50%.