Macro Weekly – How low can interest rates go?

We expect the ECB to cut its main policy rates deeper into negative territory, with the key deposit rate dropping to -0.6%.With risks to economic growth to the downside, this raises the question of how much further interest rates can drop.The key limiting factor is adverse effects on the banking system, which could lead eventually to lower interest rates being counter-productive.Other central banks in Europe have more negative interest rates but not that much lower than where ECB policy rates are now.We think that further room for manoeuvre on interest rates is limited and asset purchases will remain the ECB’s main policy tool.