European Central Bank chief Draghi stays positive on negative rates

by RUSSELL LYNCH
European Central Bank Mario Draghi defended policy: Arne Dedert/EPA

Negative interest rates are working despite the squeeze on banking profits, Europe’s most powerful central banker insisted on Thursday.

European Central Bank president Mario Draghi defended the controversial policy in a Frankfurt speech Thursday, claiming negative rates “have turned out to be powerful in terms of easing financial conditions”.

The ECB first cut its deposit rate below zero in 2014, effectively charging banks to park cash at the ECB overnight.

The rate has since been cut further to minus 0.4%, along with a package of other stimulus measures including an €80 billion (£68 billion) a month money-printing programme, to ward off deflation.

Draghi said: “The potential negative side-effects have so far been limited. As household deposit rates have been sticky at zero, banks’ net interest rate margins have fallen somewhat.

“But the impact on bank profitability has been offset by the positive effects of easier financial conditions on the volume of lending, and the reduction in loan-loss provisions, as monetary policy has lifted economic prospects.”

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