FRANKFURT/CASABLANCA, Morocco | Thu Jul 12, 2012 6:57am EDT
(Reuters) - The European Central Bank's new zero deposit rate had an instant impact as it came into force, with banks
more than halving the amount of cash parked there overnight and one ECB policymaker saying he expected the move to
increase banks' lending.
The unprecedented deposit rate cut to zero means banks will now get nothing if they park cash at the ECB, and the bank
hopes it will nurture a return of more significant interbank lending by encouraging banks to look for more profitable options.
<a href="http://s1267.photobucket.com/albums/jj559/365Wildfire/?action=view&current=s1reutersmedianet-3.jpg" target="_blank"><img src="http://i1267.photobucket.com/albums/jj559/365Wildfire/s1reutersmedianet-3.jpg" border="0" alt="Photobucket"></a>
Banks' reluctance to lend to each other for fear of not getting all their money back has prompted them to park money at
the ECB. The sums they deposited there were boosted after the central bank unleashed over 1 trillion euros into the financial
system with twin lending operations in December and February.
An increase in bank lending could breathe life into the flagging euro zone economy, which the ECB said in its monthly bulletin
was weak and suffering from "heightened uncertainty" that was weighing on confidence.
Wednesday was the first day under the new ECB zero deposit rate set-up.
Figures published by the bank showed banks parked 325 billion euros overnight, well down on both the 800 billion they left
there the previous day and the 700 billion they deposited at the same point of the last reserves period in June.
The latter comparison is probably the best. At the start of monthly reserves cycles banks have more options to juggle their
funding so their deposits at the ECB tend to dip before building back up through the month.
The decision by the ECB to cut its main refinancing rate to 0.75 percent and stop paying interest on overnight deposits -
before the cut banks got 0.25 percent - is also one factor driving the euro to this week's two-year lows against the dollar.
That weakness will aid euro zone firms by making their goods cheaper for foreign buyers.
(Reuters) - The European Central Bank's new zero deposit rate had an instant impact as it came into force, with banks
more than halving the amount of cash parked there overnight and one ECB policymaker saying he expected the move to
increase banks' lending.
The unprecedented deposit rate cut to zero means banks will now get nothing if they park cash at the ECB, and the bank
hopes it will nurture a return of more significant interbank lending by encouraging banks to look for more profitable options.
<a href="http://s1267.photobucket.com/albums/jj559/365Wildfire/?action=view&current=s1reutersmedianet-3.jpg" target="_blank"><img src="http://i1267.photobucket.com/albums/jj559/365Wildfire/s1reutersmedianet-3.jpg" border="0" alt="Photobucket"></a>
Banks' reluctance to lend to each other for fear of not getting all their money back has prompted them to park money at
the ECB. The sums they deposited there were boosted after the central bank unleashed over 1 trillion euros into the financial
system with twin lending operations in December and February.
An increase in bank lending could breathe life into the flagging euro zone economy, which the ECB said in its monthly bulletin
was weak and suffering from "heightened uncertainty" that was weighing on confidence.
Wednesday was the first day under the new ECB zero deposit rate set-up.
Figures published by the bank showed banks parked 325 billion euros overnight, well down on both the 800 billion they left
there the previous day and the 700 billion they deposited at the same point of the last reserves period in June.
The latter comparison is probably the best. At the start of monthly reserves cycles banks have more options to juggle their
funding so their deposits at the ECB tend to dip before building back up through the month.
The decision by the ECB to cut its main refinancing rate to 0.75 percent and stop paying interest on overnight deposits -
before the cut banks got 0.25 percent - is also one factor driving the euro to this week's two-year lows against the dollar.
That weakness will aid euro zone firms by making their goods cheaper for foreign buyers.
