Early Thursday morning the European Central Bank announced it was making an unprecedented move: lowering interest rates below zero.
This means banks will actually pay 0.1 percent for the privilege of having their money held by the ECB. For years now, the United States and Japan have paid near-zero interest to banks for depositing funds with the government, but Europe’s move to charging banks is new territory for a major economy.
The ultimate goal of these interest rate policies is to encourage banks to find something else to do with the money, such as lend it out to businesses or consumers, which policymakers hope will stimulate flagging economies. Economists and central bankers have been fearing that a deflationary spiral could occur which would halt economic activity across Europe. Negative interest rates are intended to stimulate healthy, yet controlled, inflation.
The move to negative rates was largely anticipated, as ECB President Mario Draghi has been hinting at it for weeks. Nonetheless, the announcement caused investors to take their money out of the euro, briefly knocking the currency down near $1.35, the lowest level since early February.
Longer-term, if the ECB’s maneuver can stimulate growth, there may be stronger investment demand in Europe, but the current low rates have investors currently seeking higher-yielding markets elsewhere.
Corn creeps lower
After another week of favorable weather, US farmers have planted more than 95 percent of this year’s corn crop, increasing the likelihood that this year’s harvest could be a record-breaker. The USDA will update its corn production estimate next week, which could show record-high projections for the size of the US crop.
As a result of the potential large supply looming, the price for this fall’s corn crop fell to the lowest level since January, trading Friday down near $4.45 per bushel.