ECB cuts Interest Rate on government deposits starting from May
The European Central Bank (ECB) on Tuesday said that it would cut deposit interest rate ceiling of governments to push them to direct that cash flow into the financial system.
In the fight against the Eurozone’s hyperinflation, the ECB has steadily raised interest rates and at the end of last year began paying interest on deposits from the public sector to prevent cash from flooding the bond market, where the highest rated government bonds have become scarce after years of purchases by the ECB to increase the money supply and fuel inflation at a time when it was too low.
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With the government deposit rate cutting, the ECB is now giving public sector depositors a reason to take some of their money out of the central bank and put it on the market.
Starting May 1, the ECB will reduce interest rates by 20 basis points on short-term euro-denominated deposits (ESTR) when paying on deposits by Eurozone governments and other public sector institutions at Eurozone central banks.
At the same time, the ECB also plans to start cutting its bond holdings worth 5 trillion euros next month, which will alleviate concerns about the scarcity of collateral to borrow in the market.
ECB cuts Interest Rate on government deposits starting from May
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