Today at 1:45 p.m., the news came from the meeting of the European Central Bank (ECB): Europe’s monetary guardians are lowering the key interest rate to a historic 0.15%. In addition, banks will have to pay a penalty interest rate in the future if they park money at the ECB, specifically minus 0.10%.
Why were these radical steps taken?
Currently, the inflation rate is 0.5% and thus far from a “healthy” inflation rate of 2%. The consequence of such low rates is deflation, i.e. an economic downturn up to the economic depression. The ECB wants to avoid this with all the means at its disposal.
What does this mean for companies?
Now that banks are subject to a penalty interest rate on their insufficient credit funds, loan financing is likely to be even easier both in terms of interest rate and lending criteria.
On the investment side, the already poor interest rate is likely to reach another low. The overnight money on the money market today was 0.17%, 10-year German government bonds generate only 1.43%; In both cases, the trend continues to fall
What are other consequences?
A side effect is likely to be the further promotion of some so-called bubbles, be it on the stock market but especially on the real estate market.
In addition, an interesting paradox arises. Some banks are likely to see their business model massively endangered as a result of the low interest rate phase, which hardly allows them to generate adequate income in traditional banking business such as lending and deposit business. These banks are likely to be tempted to invest in riskier business areas. In doing so, the ECB is thwarting its very own goal of stabilising the banks (keyword stress test).
We look forward to your comments!
Image source: Fotolia.com, Photographer: bluedesign
