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ECB sets negative interest rates - what does this mean?

Jonny Clark

6th June 2014

The European Central Bank implemented a negative interest rate policy yesterday. Whilst we have become very accustomed to a low base rate in the UK, the ECB policy seems extraordinary.The policy has come about due to a continued concern over the economic situation in the Eurozone. Growth remains weak, unemployment is high and inflation sits below the target of 2% in many of the 18 countries. The ECB is unlikely to follow the UK (and others) strategy of quantitative easing and so is left with fewer choices.By setting a negative interest rate, the ECB wants to discourage banks from keeping larger reserves and promote a greater level of lending (and thus stimulate economic growth).If you want to download a short Powerpoint slideshow that explains the policy and its possible consequences then click on this link.

Jonny Clark

Jon Clark has been teaching economics and business studies for over 25 years primarily in the Further Education sector. Before joining tutor2u, he was a senior manager at South Cheshire College in Crewe.

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