European Central Bank to allow banks to borrow at minus 1 percent

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The European Central Bank (ECB) announced Thursday that it will essentially pay banks to lend money as it works to blunt a sharp economic decline fueled by the coronavirus pandemic. 

The ECB said it will in certain instances allow commercial banks to borrow at a rate of minus 1 percent so long as the money is passed on to consumers and businesses. The change effectively allows banks to not pay back all of the money they borrow. 

ECB President Christine Lagarde warned during a press conference that the eurozone economy could shrink by as much as an “unprecedented” 12 percent this year as the virus continues to ravage the continent.

Among other measures the ECB is taking to blunt the pandemic’s economic fallout are boosting its purchases of government and corporate bonds, making it easier for businesses to get credit and raising the amount of funds it is allocating for asset purchases “by as much as necessary and for as long as needed.” 

“The euro area is facing an economic contraction of a magnitude and speed that are unprecedented in peacetime. Measures to contain the spread of the coronavirus, COVID-19, have largely halted economic activity in all the countries of the euro area and across the world,” Lagarde said. 

“In particular, our measures are supporting liquidity conditions and helping to sustain the flow of credit to households and firms, especially small- and medium-sized enterprises, and to maintain favorable financing conditions for all sectors and jurisdictions.”

The new moves add to already announced stimulus measures that include $825 billion in bond purchases.

The ECB last implemented negative interest rates in 2014.

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