ECB Tests Negative Interest Rate

The European Central Bank has lowered its deposit rate for banks to a range of 0% to -0.1% in an effort to stimulate the eurozone's fragile economy.

The move is intended to coax banks to lend rather than hold their deposits. BBC News says analysts are uncertain about the impact of the negative rate, which is a first for a major central bank.

As expected, the ECB also lowered its benchmark interest rate to 0.15% from 0.25%. The bank says it wants to increase inflation in the eurozone to about 2% from the current 0.7%. Economists have warned that the region's chronic sub-1% inflation rate could sink into a dangerous deflationary spiral, which would depress consumer spending.

The ECB unveiled another incentive to strengthen the eurozone economy: special long-term loans to commercial banks. The loans are capped at 7% of the amount the banks then loan to companies. The scheme rewards banks that write more loans by allowing them to borrow more money from ECB at low rates.

BBC notes that the central bank also is preparing a plan to give small companies greater access to credit by buying bundles of loans and extending them to businesses in the form of bonds.

ECD President Mario Draghi says the central bank unanimously agreed to consider more unconventional steps if inflation in the eurozone remains too low.