A negative
interest rates policy is implemented by a central bank that wants to spur
growth in the economy when all the other monetary tools are not enough. The central
bank uses this unconventional monetary policy tool when it sets interest rates
below 0, like -0.5% and expects banks, businesses, and individuals to borrow
and spend money in the economy instead of hoarding cash and lose money paying
the interest rather than receiving it. Negative
Interest Rates Policy ExplainedThe NIRP has
been used in countries like Japan, Switzerland, or Europe to combat
deflationary environments since negative interest rates should not only
encourage spending but also weaken the local currency so that exports become
cheaper for foreigners and imports become costly due to the currency
depreciation. The
drawbacks of the NIRP are that banks profitability drops because of the bearing
of negative rates that are not passed to some customers for fear of losing
those clients. It’s not yet clear if such a monetary policy tool is indeed
better than just keeping interest rates at 0 but results from Japan, Europe and
Switzerland haven’t yet proved this tool successful.
A negative
interest rates policy is implemented by a central bank that wants to spur
growth in the economy when all the other monetary tools are not enough. The central
bank uses this unconventional monetary policy tool when it sets interest rates
below 0, like -0.5% and expects banks, businesses, and individuals to borrow
and spend money in the economy instead of hoarding cash and lose money paying
the interest rather than receiving it. Negative
Interest Rates Policy ExplainedThe NIRP has
been used in countries like Japan, Switzerland, or Europe to combat
deflationary environments since negative interest rates should not only
encourage spending but also weaken the local currency so that exports become
cheaper for foreigners and imports become costly due to the currency
depreciation. The
drawbacks of the NIRP are that banks profitability drops because of the bearing
of negative rates that are not passed to some customers for fear of losing
those clients. It’s not yet clear if such a monetary policy tool is indeed
better than just keeping interest rates at 0 but results from Japan, Europe and
Switzerland haven’t yet proved this tool successful.
A negative
interest rates policy is implemented by a central bank that wants to spur
growth in the economy when all the other monetary tools are not enough.
The central
bank uses this unconventional monetary policy tool when it sets interest rates
below 0, like -0.5% and expects banks, businesses, and individuals to borrow
and spend money in the economy instead of hoarding cash and lose money paying
the interest rather than receiving it.
Negative
Interest Rates Policy Explained
The NIRP has
been used in countries like Japan, Switzerland, or Europe to combat
deflationary environments since negative interest rates should not only
encourage spending but also weaken the local currency so that exports become
cheaper for foreigners and imports become costly due to the currency
depreciation.
The
drawbacks of the NIRP are that banks profitability drops because of the bearing
of negative rates that are not passed to some customers for fear of losing
those clients. It’s not yet clear if such a monetary policy tool is indeed
better than just keeping interest rates at 0 but results from Japan, Europe and
Switzerland haven’t yet proved this tool successful.
