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What purpose do negative rates serve?

The ECB reopened the debate over the effective floor for its interest rate policy stating it is considering another cut in its deposit facility rate. The negative rate is intended to loosen financial and monetary conditions, in particular through its effect on the exchange rate.The effects on lending and long-term rates are more mixed. In both cases, other monetary policy instruments – particularly quantitative easing – are more crucial.

What purpose do negatives rates serve? And how does it work? Read the full analysis by the Economic Research Departement of BNP Paribas.

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