Deutsche Bank CEO: Another ECB rate cut will have damaging side effects

Germany’s top banker has a warning for Europe’s central bank:another interest rate cut could do more harm than good.

“It will have serious side effects,” Deutsche Bank (DB) CEO Christian Sewing said Wednesday at a banking conference in Frankfurt.

Investors and companies expect the European Central Bank to cut interest rates to new record lowswhen it meets later this month as storm clouds gather over the global economy. The manufacturing industry is shrinking around the world, the trade war is hurting businesses and consumers are beginning to get nervous.

Rates in Europehave been negative since 2014. They helped the region recover from its debt crisisbut have hurt banks, eating into their lending profits, and people with savings.

Christian Sewing, chief executive officer of Deutsche Bank AG, pauses at the bank's annual general meeting in Frankfurt, Germany, on Thursday, May 23, 2019. Deutsche Banks leadership on Thursday will face investors exasperated by years of low profit and a falling share price. Photographer: Alex Kraus/Bloomberg via Getty Images

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Sewing argued Wednesday that pushing interest rates further into negative territory would do little to stimulate the region’s economy, which is once again in a precarious position.

Small and medium-sized businesses have told Deutsche Bank they won’t invest more just because credit is 10 basis points cheaper, Sewing said. Cutting rates will only “only serve to drive assets prices even higher and penalize savers,” he continued.

Sewing also made a social case against persistently low interest rates. Such policies feed inequality by continuing to reward the privileged fewwho benefit from access to cheap credit, he said, while savers in Europe were losing 160 billion euros ($145 billion) a year because of negative rates.

“That further divides society,” Sewing said.

The sculpture 'The Wings' by star architect Daniel Libeskind can be seen in front of the headquarters of Siemens AG in Munich, Germany, 18 December 2017. Photo: Matthias Balk/dpa (Photo by Matthias Balk/picture alliance via Getty Images)

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Sewing’s remarks come as concerns about Germany’s economy, Europe’s largest, shows increasing signs of weakness. The country’s central bank has warned that it could be slipping into a recession.

That’s bolstered the case for the ECB to take action at its next meeting on September 12. In addition to potentially cutting interest rates, the central bank is expected to announce that it will restart its bond-buying program in the hope of providing more stimulus to the economy.

It is also thought to be weighing a so-called tiering system that would lessen the impact of negative interest rateson the banking sector.

The prospect of more deeply negative rates is particularly painful for Deutsche Bank, which recently announced a massive turnaround effort that includes 18,000 job cuts. The bank has pledged to increase revenues by 10% to €25 billion ($28 billion) by 2022, leaving little room for error or higher costs.

— Mark Thompson contributed to this report.