April 10, 2019 / 1:12 PM / 6 months ago

ECB will consider if impact of negative rates on banks should be mitigated: Draghi

FRANKFURT (Reuters) - The European Central Bank will consider whether preserving its negative interest rates requires the mitigation of their possible side-effects, if any, on bank intermediation, ECB President Mario Draghi said on Thursday.

Mario Draghi, President of the European Central Bank (ECB) holds a news conference on the outcome of the Governing Council meeting at the ECB headquarters in Frankfurt, Germany April 10, 2019. REUTERS/Kai Pfaffenbach

Draghi was speaking at a news conference following the ECB’s regular monetary policy meeting, at which it kept its ultra-easy stance unchanged as expected.

“We need further information that will come to us between now and June,” Draghi said.

ECB staff have been studying a tiered deposit rate, which would give banks a partial exemption from paying the ECB a charge on the excess cash they park at the central bank.

Such a system, similar to those implemented in Japan and Switzerland among other countries, would make it easier for the ECB to keep its deposit rate in negative territory or even cut it further, by limiting its impact on banks.

Draghi said it was too early to make a decision on tiering, which would depend on a thorough assessment of the bank-based transmission channel for the ECB’s monetary policies and on further developments in the economic outlook.

After taking out mandatory reserves, euro zone banks are sitting on a 1.8 trillion euro ($2.0 trillion) pile of liquidity, on which they pay a 0.40 percent annualized charge to the ECB. This cash, a byproduct of the ECB’s own 2.6 trillion euro bond-buying program, is mainly concentrated in Germany and France.

First reported by Reuters, the debate about a tiered deposit rate has divided Governing Council members.

Some supportive comments came from French central bank governor and ECB presidential hopeful Francois Villeroy de Galhau, while his Dutch peer - and noted policy hawk - Klaas Knot struck a sceptical tone.

Draghi said there had been a consensus at Thursday’s policy meeting on the need for further analysis.

Editing by Catherine Evans and Hugh Lawson

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