Frankfurt / Main (AP) - Europe's monetary authorities have cemented the interest-free for years. Instead of initiating the turnaround back to monetary policy normality, ECB President Mario Draghi, who was leaving at the end of October, put in another strong performance on Thursday.
Which course is the ECB heading?
The ECB keeps interest rates in the eurozone indefinitely at a record low. The Governing Council now expects interest rates to remain "at their current or lower levels for so long", until inflation has approached the target of just under 2.0 per cent.
Will interest rates continue to fall now?
The key interest rate initially remains at the record low of zero percent. But monetary policy fines have been further tightened by banks' interest rates: the so-called deposit rate drops from minus 0.4 to minus 0.5 percent. For commercial banks, it will be even more expensive to park money at the central bank. With the penalty rate, the central bank wants banks to pass on the many cheap money that the ECB has made available to companies and consumers so that it flows into investment and consumption. This should stimulate the economy and increase inflation.
Why is the ECB imposing?
International trade conflicts - especially between the heavyweights USA and China - weigh on the global economy. Further uncertainty is caused by the Brexit drama: it is still uncertain under what conditions the British will leave the European Union at the end of October. In view of the global economic slowdown and the weakness of world trade, Draghi believes that a "very expansive monetary policy" remains necessary.
Why is price stability so important?
In the medium term, the central bank is aiming for a rate of inflation of just under 2.0 percent. If inflation is too high, consumers lose purchasing power and the currency loses support. On the other hand, stagnating prices or falling across the board can mislead consumers and businesses to postpone investment. Because it could be even cheaper soon. This wait-and-see attitude can slow down the economy. However, the two-percent target of the ECB has become a long way off: in August, inflation in the eurozone remained at 1.0 percent, its lowest level in more than two and a half years.
What does the central bank's course mean for bank customers?
The fact that the ECB has not only pushed the first interest rate hike further into the future, but also exacerbated the punitive interest rate, is putting banks in a double burden. According to calculations by the Federal Association of German Banks (BdB), eurozone financial institutions are already paying around 7.5 billion euros in negative interest rates to the ECB every year. Individual institutions in Germany have been passing on the penalty interest to companies or large investors such as funds for some time. And even wealthy private customers are asked to pay in some houses. The majority of private customers have so far been spared from punitive interest. This could change now. "If it costs money in the long term to accept deposits, and if you have to give borrowers interest at the same time, somebody will have to pay," said the President of the German Savings Banks Association (DSGV), Helmut Schleweis.
Can the policy protect small savers from negative interest rates?
CSU boss Markus Söder had demanded a ban to exempt amounts of up to 100,000 euros in principle from penalty interest. Lawyers consider it basically possible, similar to the rental price brake in the case of negative interest to restrict freedom of contract. At present, a legal regulation is unlikely. Banks anyway would have "in the current contract structures hardly options ... to demand such negative interest rates for many of their customers at all," said Federal Finance Minister Olaf Scholz (SPD) in early September. "And that's why you have to watch it and check and act, if there's something to do. But I believe there is still enough wisdom in the boards and management of the banks to know what that would cause. "Banks can also recover the cost of ECB penalties elsewhere: through rising fees for account, card and Co.
What does the ECB's private pension policy mean?
The interest on life and annuity insurance has been falling for quite some time. As a result of the slump in interest rates, it is becoming increasingly difficult for the insurance industry to generate the high promise of the past on the capital markets. The consequence: the profit participation, the amount of which insurers decide each year depending on the economic situation and the success of the investment strategy, is on average lower. A break in the decline in 2019 should not be permanent, according to experts.
Do consumers also have any of the low interest rates?
Debtors benefit. Real estate financing, for example, has been relatively cheap for some time. Many bank customers use this and secure low mortgage rates for maturities of 15 or 20 years. The portal "Finanz-Szene.de" recently pointed to information that soon there could even be real estate loans with negative interest rates. Means: Who lends, for example, 100 000 euros from the bank, may have to repay only 95 000 €.
Bundesbank President Jens Weidmann points to this side of monetary policy, despite his understanding of savers' concerns. "Nobody is just savers, they are also employees, borrowers or taxpayers," Weidmann recently said in an interview with Frankfurter Allgemeine Sonntagszeitung »:« Pay-as-you-go statutory pension insurance, for example, benefits from a high level of employment with noticeable wage increases. Low interest rates have a positive impact here. »
Time series ECB interest rates
ECB purchase program
ECB interest rate decision 12.9.2019
Draghi inaugural statement 12.9.2019
Interview BdB chief executive Krautscheid and others on penalty interest
Biallo at penalty interest
CSU boss Söder in the "Bild" newspaper at penalty rates
Communication Verbraucherzentrale Bundesverband on penalty interest
FAS interview Bundesbank President Weidmann (with payment barrier)
Eurostat on inflation in the euro area
Federal Statistical Office on Inflation Germany
Tweet US President Donald Trump