FRANKFURT, Germany — The European Central Bank cut its key interest rate by a quarter percentage point Thursday to a record low 0.75 percent to try to help ease Europe’s financial crisis and boost its flagging economy. The action, which was widely expected, is meant to make it cheaper for businesses and consumers to take loans.
In a more surprising move, the ECB also cut to zero the interest rate it pays banks on overnight deposits by a quarter percentage point. This pushes banks to lend the money, rather than sock it away with the ECB.
Stock markets initially rose after the news, but the gains quickly faded. Germany’s DAX stock index was up 0.4 percent while the Dow futures index was flat. The euro was down 1.1 percent at $1.2380.
So, now the ECB wishes the banks to become overextended…….. again. I don’t know, there’s something familiar about all of this in the vague recesses of my mind. Don’t get me wrong, we all like low interest rates, but, when money is cheap, lending and borrowing is encouraged. Has there been any significant reform to ensure the last debacle won’t happen again?