European Central Bank policymakers are reviewing the interest the bank pays on government cash deposits, including a potential cut, to try and rein in mounting losses resulting from its fight against inflation.
FRANKFURT, Nov 1 - European Central Bank policymakers are reviewing the interest the bank pays on government cash deposits , including a potential cut, to try and rein in mounting losses resulting from its fight against inflation, two sources told Reuters.
But they put off any decision after last week's preliminary discussion, fearing any change might backfire, the sources added. The Bundesbank, traditionally a magnet for public funds due to Germany's perceived safety, and some others of the euro zone's national central banks have already lowered their own rates to zero.
But years of ECB purchases of government bonds and the more recent surge in interest rates have complicated that picture.Fearing"an abrupt outflow" of public cash into the money market, which had been deprived of vital collateral by the ECB's own bond purchases, the central bank started remunerating government deposits too.
Euro zone commercial banks earn 4.0% on the excess cash they park at their central bank, which is a whopping 3.5 trillion euros after the ECB flooded the system with money over the past decade, when it was trying to boost too-low inflation via massive bond purchases.
ECB Interest Rates Government Cash Deposits Losses Inflation Euro Zone Central Bankers Commercial Banks Excess Cash
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