ECB Cuts Interest Rates to Record Low again
Rama Krishna Vadlamudi, HYDERABAD 10 December 2011
On 8 December 2011, the European Central Bank, headquartered in Frankfurt, decreased the key interest rate in the eurozone to a record low of 1.00 per cent from 1.25 per cent. The new rate is effective from 14 December 2011. This is the key rate through which ECB provides the bulk of the liquidity to the banking system in the eurozone.This is the second policy rate cut undertaken by Mr Mario Draghi in less than two months since taking over as ECB president. He took over as president of the ECB on 1 November 2011.
The ECB had on 8 December 2011 taken the following measuresalso to support bank liquidity:
To conduct two longer-term refinancing operations with amaturity of 36 months and the option of early repayment afterone year.
To reduce the reserve ratio, which is currently 2%, to 1% as ofthe reserve maintenance period starting on 18 January 2012.
To increase collateral availability by reducing the ratingthreshold for certain asset-backed securities (ABS) andallowing more flexibility to national central banks (NCBs) inaccepting collaterals
Key interest rates of the ECB
There are three important rates set by the ECB. The most importantof them is the refinancing rate of the Main Refinancing Operations.
1. Refinancing Rate:
This refinancing rate is considered as the keypolicy rate of the ECB. Main Refinancing Operation is a regular openmarket operation conducted by the national central banks (NCBs).