Comments by ECB executive board member, Isabel Schnabel
- Negative rates can have side effects on bank profitability, risk-taking behaviour
- Past few years suggest that positive effects have dominated
- Side effects are likely to become more relevant over time though
- The pandemic is a wake-up call for governments to foster innovation, growth
- There is considerable uncertainty with regards to precise level of 'reversal rate'
- Current estimates suggest that the ECB has not reached effective lower bound
If policymakers at the ECB really believe that the NIRP approach has been a 'success', then I must say that their benchmark is really low. As much as negative rates have grown to be a staple in Europe, it isn't quite a 'successful' policy to get behind.
The crux of negative rates is that it punishes savers at the expense of borrowers. The point Schnabel is trying to make relates more towards inflation and stimulating the economy, and to be honest there hasn't been stellar progression on both fronts.
Hence, why I say that the benchmark for the ECB deeming negative rates a 'success' is really low. As for pursuing a further lower bound, this is something that they have alluded to before at the end of last year here.
