Investors eye possible negative ECB rates Growing expectations the European Central Bank will attempt to boost eurozone growth prospects by charging banks for using its deposit facility have started to be reflected in market interest rates. The interest rate on borrowing unsecured cash for one year in euro wholesale markets dipped below zero for the first time after the ECB last week downgraded steeply its 2013 eurozone growth forecasts. The ECB last cut interest rates in July, when the main policy rate fell to 0.75 per cent. At the same time the interest rate charged on the ECB's "deposit facility," which is used heavily by banks to park funds overnight and provides a floor for market interest rates, was lowered to zero. A next step for the ECB could be to set a negative rate on its deposit facility - in effect, charging banks for its use - with the aim of encouraging them to pump money into the real economy instead. Hedge funds are increasingly betting on such a step in the next few months, according to traders. "Expectations have grown since last week that the ECB could start imposing negative interest rates," said Laurent Fransolet, head of European fixed income research at Barclays. But in our view the hurdles for the ECB to cut the deposit facility rate are much higher than for the main rate - and it is not clear whether it would be effective, and there are potential unintended consequences. Trade rocketed in futures markets late last week after Mario Draghi, ECB president, said the central bank's governing council had discussed further cuts in policy interest rates, although the "prevailing consensus" was to keep them unchanged. The price of options which allow traders to bet on overnight inter-bank rates for euro loans turning negative in the next three months rose. Overnight interbank rates track the ECB's deposit rate. Mr Draghi's wording on Thursday indicated at least a substantial minority of council members had favoured a cut in the main rate. But he was more circumspect about the deposit facility rate. While the ECB was "operationally ready" for negative rates, discussions "in this respect did not go into any depth." As well as possible problems in computer systems with negative interest rates, Mr Draghi's hesitation reflects a widespread view that they would have little impact on lending to businesses and consumers given the weak demand for credit. Although other central banks, such as in Denmark, have experimented with negative interest rates, the ECB president has also warned in the past that such a step would be into "largely uncharted waters." The interest rate on one-year wholesale euro loans dipped below zero last Friday but has risen since the start of this week. One reason for the rise was comments by Peter Praet, an executive board member, in an interview with the Wall Street Journal that the ECB had "little margin of manoeuvre" on interest rates.