The European Central Bank (ECB), struggling to revive activity and inflation in the euro zone, may adopt a radical policy tool on Thursday that its Japanese and Swiss counterparts have used to reinvigorate their own soggy economies.
The ECB could use its scheduled policy meeting to announce a plan that levies a penalty on only a portion of banks' reserves, as it aims to cushion the impact of negative rates on the region's financial system, analysts said.
Expectations of a multi-tiered system, in which different deposit rates are applied to the reserves that lenders place with the central bank, have risen recently amid concerns that banks are increasingly on the hook as global central banks try newer approaches to fuel growth.
In the ECB's case, the deposit rate is negative, which means banks have to pay the ECB for the privilege of parking their cash.
"It would protect banks to some extent and potentially allow much more negative rates than the ECB would have been able to implement otherwise. Currently, just having a flat negative rate hits banks; you have a limit as to how far you can go. A multi-tiered system lets you cut rates even further."