Bloomberg News

Liikanen Says ECB Doesn’t Have Target for Overnight Deposits

July 06, 2012

European Central Bank Governing Council member Erkki Liikanen said policy makers aren’t targeting a specific level of overnight deposits with yesterday’s rate cut.

“There is no quantitative target,” Liikanen said in an interview in his hometown of Mikkeli in central Finland today, when asked about the impact of cutting the deposit rate to zero. “It was a symmetrical decision that we went down with all policy rates and that was a consistent policy decision with standard monetary policy.”

The ECB reduced all its interest rates by 25 basis points, taking the benchmark to a record low of 0.75 percent and the marginal lending rate to 1.5 percent. The zero deposit rate means banks will no longer be paid interest when they park excess cash with the ECB overnight. They currently deposit about 800 billion euros ($989 billion) with the ECB each day.

Asked if the reduction in the deposit rate will cause the amount of liquidity in the facility to decrease, Liikanen said: “we will see. It’s for the banks to decide.”

The ECB’s new rates take effect on July 11.

With Europe’s debt crisis curbing lending and undermining confidence among investors and executives, the ECB was under pressure to ease monetary policy further. The central bank has already injected more than 1 trillion euros into the banking system to prevent a credit crunch.

Some of the risks to the euro area’s economic outlook identified by the Frankfurt-based ECB in previous months “have materialized,” said Liikanen, who heads Finland’s central bank.

“2012 will be subdued, it will be weaker than expected a year ago,” he said. “Beyond that depends on how the world economy develops, because exports have been one of the factors in the forecast that could lead to growth. This year will be weak in the economy.”

To contact the reporter on this story: Kati Pohjanpalo in Mikkeli at kpohjanpalo@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net


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