The European Central Bank (ECB) just went negative — and thatâ??s not going to be good for your money.
Last week, the ECB distinguished itself as the first major central bank ever to implement whatâ??s called â??negative interest rates,â?ť which means the ECB will actually charge depositors to keep their money at the central bank. Effective June 11, the ECB deposit rate will drop to -0.1% from 0.0%.
The goal of this negative interest rate policy is to try to financially engineer the decisions of banks to lend out money to business and households. By doing so, the ECB hopes to promote more economic activity in Europe, and to combat the increasing threat of disinflation.
Now, as a skeptic of both the efficacy and the effectiveness of central bank action in the economy, itâ??s easy to read the ECBâ??s decision as an admission of failure of its current loose monetary policy. Still, as an investor and a market watcher, I must acknowledge the immediate ramifications of the ECBâ??s latest move.