EU bank tries to ease virus crisis

BRUSSELS: The European Central Bank (ECB) has announced steps to tackle the economic impact of the coronavirus outbreak.

It is offering cheap loans to commercial banks to encourage them to lend to small businesses. It is also expanding its quantitative easing programme, buying financial assets with newly created money. But unlike some other leading central banks, it did not cut interest rates. European stocks fell even further, in what was already a gloomy session.

It was what the ECB did not do that seems to have grabbed the immediate attention of financial markets. Several other central banks, notably the US Federal Reserve and the Bank of England, cut rates in response to the economic damage that is mounting, largely as a result of efforts to address the health crisis.

But many economists questioned the value of further rate cuts in the specific case of the ECB, which sets policy for the 19 countries that make up the eurozone. One of the ECB's key rates is already below zero. Its deposit rate, which applies to extra cash held by commercial banks, stands at minus 0.5%.

That means, in effect, that banks pay to park excess funds with the ECB. Critics say it makes it harder for the banks to be profitable and leaves them less able to lend to firms and households. A move to even further below zero could aggravate that problem.

Many observers therefore thought that the ECB would be reluctant to take its rates even lower, although that did not prevent the markets from registering their disappointment. The ECB has nonetheless taken some steps that are intended to contain the economic damage.

It will provide loans to commercial banks to support their lending to "those most affected by the spread of the coronavirus, in particular small and mediumsized enterprises".