ECB introduced the negative deposit rate.

10.06.2014

Unprecedented decisions were made at the meeting of European Central Bank on the 5^th of June, 2014. So, the key refinancing rate was reduced from 0.25% to 0.15% and the rate for overnight loans to banks has been reduced from 0.75% to 0.4%; the deposit rate was lowered even in negative territory - from 0% to -0.1%.

The changes will come into force from 11^th of June, 2014 together with changes of interest rates for all main refinance operations and for credits.

Negative deposit rate will apply to:

1) banks’ average reserve holdings in excess of the minimum reserve requirements;

2) government deposits held with the Eurosystem that exceed certain thresholds that will be set in the relevant Guideline to be published by 7 June;

3) Eurosystem reserve management services accounts if not currently remunerated;

4) participants’ account balances in TARGET2;

5) non-Eurosystem NCB balances (overnight deposits) held in TARGET2;

6) other accounts held by third parties with Eurosystem central banks when stipulated that they are not currently remunerated or are remunerated at the deposit facility rate.

Source: http://www.ecb.europa.eu/press/pr/date/2014/html/pr140605_3.en.html

Expert’s opinion

Negative deposit rate means that the holders of money, who are saving their money thorough deposits, will pay to the bank for saving their money.

The mass outflow of money from deposits is expected to the banks of those jurisdictions, that, as minimum, did not introduced the negative deposit rate. Also, the investment of money into different types of CB funds and other invest portfolios.

Yaroslav Lomakin ( Managing Partner, Honest&Bright)