ECB debated raising banks’ mandatory reserves in inflation fight – sources

FRANKFURT (Reuters) – European Central Bank policymakers debated raising banks’ mandatory reserves to 2% from 1% of their deposits at their meeting on Thursday as part of their fight against high inflation, two sources close to the matter told Reuters.

The move would mop up more cash from the banking system and therefore contribute to the ECB’s efforts to raise borrowing costs and cool inflation, but it would also prove expensive for banks as those reserves aren’t remunerated.

The proposal wasn’t supported by the majority of policymakers at the gathering but it might come back when the ECB reviews its overall framework for steering interest rates later this year, the sources, who spoke on condition of anonymity, added.

The ECB raised interest rates for the ninth consecutive time on Thursday under a year-long effort to bring down inflation, but it also decided to stop remunerating banks’ minimum reserves to contain the amount it pays in interest.

The sources said some policymakers currently favour a pause in rate hikes in September, expecting the euro zone to be heading into a recession, while others would prefer to raise borrowing costs again at that meeting.

An ECB spokesperson declined to comment.

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