In a bold move, while sending a message, the ECB cut the rate on bank deposits parked overnight with the central bank to minus-0.1 percent. In other words, the central bank will be charging commercial banks to keep their money at the ECB.
Finally, President Draghi promised to do more if necessary and indicated he would be considering a plan that included buying asset-backed securities and bundles of bank loans. Such a move would be similar to the Federal Reserve’s existing quantitative easing plan.
Although bonds have generally been in a downtrend over the past week, they ended higher on Thursday following President Draghi’s lower interest rate plan. Although low interest rates are good for businesses, they can be problematic for the saver, who may feel forced to take on more risk in order to make up for the lost interest.
This article was written by Laif Meidell, CMT, president of American Wealth Management, and portfolio manager of the AdvisorShares Meidell Tactical Advantage ETF (MATH). This commentary originally published in the Reno Gazette-Journal. Performance numbers used in this article were obtained through eSignal and are not guaranteed to be accurate.