05.09.201403:12:29UTC+00Rates cut by ECB to stem deflation

In an unexpected move this week, the European Central Bank has decided to further cut borrowing costs already at an all time low to support the region’s stagnating economy.

The ECB announced on Thursday that is has reduced its main refinancing rate from 0.15% to 0.05% months after bank president Mario Draghi cut the rate earlier in the year. Draghi described the initial move to a lower interest rate back in June as reaching “the lower bound” which gave no indication of more cuts in the near future.

Sentiments seemed to have change, however, when Draghi stated in a speech last August 22nd that data from various financial markets were showing no improvement in terms of inflation and instead  "exhibited significant declines at all horizons" during the month. Inflation in the eurozone slowed down last month to 0.3% putting it even farther away from the central bank’s goal of near 2% and increasing the threat of deflation occurring among the monetary union’s member countries.

The ECB likewise made additional cuts to both its overnight deposit rate and emergency borrowing rate which is known as the marginal lending facility. With the overnight deposit rate in the negative region at -.20%, banks will now be charged for storing funds at the ECB instead of making it available to businesses.