BERLIN (Reuters) - The European Central Bank has nothing new to say about instituting negative deposit rates, ECB President Mario Draghi said on Thursday, after a media report that the central bank was actively considering the move.
“Let me plead with you — don’t try to infer from what I say today anything on the possibility of negative rates on the deposit facility,” Draghi said in a speech at an event organised by German newspaper Sueddeutsche Zeitung.
“As I said at the press conference, this was discussed in the last monetary policy meeting and there is no news since then,” he said. “So let me make this clear: you know people tend to put things together and create their own dreams.”
Draghi said on November 7 that the central bank was “technically ready” for negative rates, if the economy warranted them. Those comments came at a news conference after the ECB cut its main refinancing rate to a record-low 0.25 percent and kept the deposit rate at zero.
With euro zone inflation running at 0.7 percent, well below its target of just under 2 percent, the ECB is open to the idea of taking fresh measures to support the economy. Vice-President Vitor Constancio said on Tuesday “everything is possible”.
Draghi’s comments on Thursday suggested that he wanted to temper expectations that the deposit rate would drop into negative territory so soon after the November rate cut, not take the idea off the table.
Cutting the deposit rate below zero would take the ECB into uncharted waters. It would effectively charge banks for holding money at the ECB.
Some people at the ECB consider a negative rate the logical next step if deflation continues to threaten the euro zone. Insiders say the option was discussed at this month’s meeting and much work has been done to overcome the technical hurdles in recent months.
The euro gained after Draghi’s signal that imminent action was unlikely, rising to a session high of $1.3477 against the dollar from $1.3435 before his comments. It traded at $1.3470 by 1320 GMT. German bond futures fell to a session low.
Draghi’s comments came after the news agency Bloomberg said on Wednesday the ECB was considering making banks pay to deposit cash overnight at the central bank. If the ECB went ahead, it would consider cutting the deposit rate to -0.1 percent, Bloomberg reported, citing unnamed sources.
Also on Wednesday, a central bank official told Reuters the ECB, the national central banks for euro zone countries and corporate lenders have all adjusted their internal systems to cope with negative deposit rates should they come.
“But in contrast to the spring, when such an option was heavily debated, the appetite for this has waned recently,” the official said.
A commercial bank executive said that the bank had been asked about six months ago to be prepared for negative deposit rates. The issue was complicated, because it was not clear how a negative rate would work.
“We are just waiting now,” the banker added.
In Thursday’s speech, Draghi also said the ECB’s rate cut was meant to restore a margin of safety against deflation rather than signalling that the risk of deflation could materialise in the euro zone.
Draghi said the ECB had seen “slow-motion” disinflation for months. Combined with a weak economy, that suggests a prolonged period of low inflation was likely.
“I think the next step will be on rates,” Nordea analyst Anders Svendsen said. “They are clearly keeping the door open.”
Additional reporting by Arno Schuetze in Frankfurt, writing by Sakari Suoninen; Editing by Larry King