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ECB could pay banks to borrow from it under new scheme
[FRANKFURT] The European Central Bank could pay banks to borrow from it provided they lend on the funds to households and companies, ECB President Mario Draghi said on Thursday, outlining a new loan programme intended to boost credit growth.
Draghi said that under the new targeted longer-term refinancing operations (TLTRO II), four-year loans would be offered at the ECB's main refinancing rate - which it had just cut to zero - with a discount for more active lenders.
"Banks will pay the (refi) rate at the time of bidding - so right now, zero - and they may even get a reduction of that rate which increases with the amount of loans they grant," Draghi told a news conference after the bank's policy meeting. "The maximum reduction will bring the rate on the TLTRO2 to the level of the deposit facility rate at the time of bidding."
The eurozone's central bank cut its deposit rate to -0.4 per cent on Thursday, suggesting it will effectively pay banks to borrow from it in order to help boost growth and inflation.
"The amount that banks can borrow is linked to the amount of loans they have on their balance sheet," Draghi added. "So a bank that is very active in granting loans to the real economy can borrow more than a bank that concentrates on other activities."