What are negative interest rates?

Negative interest rates are when the usual interest rate on deposits is changed to a negative value. It is sometimes applied to the interest rate when the central bank accepts deposits from private banks. Normally banks get interest when they deposit money with the central bank, but in the case of negative interest rates they pay a fee instead.

Banks will see a shrinkage in the money they deposit with the central bank, so it is expected to prompt banks to aggressively liberalize business-oriented lending. For example, on January 29, 2016 the Bank of Japan announced a negative interest rate of -0.1%, which will be implemented from February 16, 2016 onwards.

Negative interest rates are when the inflation rate is higher than the bank deposit rate and the price index (CPI) climbs rapidly, resulting in a negative bank deposit rate in real terms.

Negative interest rate = bank interest rate - inflation rate (CPI index)

Currently, the one-year fixed bank interest rate of our Global Gold Exchange is 3%, while the inflation rate is 3.3%, and the negative interest rate, which is also the real rate of return, is -0.3%.

Expanded:

Negative interest rates are essentially a continuation of quantitative easing as far as Europe and Japan are concerned, and the original purpose of implementing negative interest rates was to stimulate bank credit and raise In contrast, Denmark and Sweden implemented negative interest rates mainly to ease the pressure of capital inflows and local currency appreciation.

However, from a fundamental point of view, the negative interest rates actually come from the real economy, the level of return on investment declined, which also shows the financial crisis after the global economic growth of the lack of growth point of a real challenge.

From a micro level, negative interest rates pose a threat to financial institutions that rely on traditional pricing models, similar to the "Y2K problem", which do not include negative interest rates as a variable, and thus these models do not perform their pricing function correctly, which will inevitably affect the normal operation of these financial institutions.

In addition, because the deposit rate is still isolated from the negative interest rates, the policy is not significant for individual depositors, but there is also the phenomenon of the Japanese people hoarding cash. The impact of negative interest rates on people's psychological expectations is an issue that cannot be ignored.

As far as the industry level is concerned, the first to bear the brunt of the banking industry. Commercial banks are the most important part of the implementation of the negative interest rate policy, negative interest rates reduce the spread of commercial banks, and banks are forced to compete with the pressure of the industry often do not dare to pass on this tax to consumers.

Taking Europe as an example, in the fourth quarter of 2015, the financial reports of large European banks show that 15 large banks in the loss of 6, profit decline of 9, and since 2016, the share price of all these banks fell, the decline is much larger than the decline of the main European stock index in the same period. The reason for this, negative interest rates caused by the decline in the level of bank profits can not be blamed.

Negative interest rates have also had an impact on the global asset allocation industry, particularly in the bond market. This is reflected in the increased volatility of bond returns, the yield curve decline, the recent European bond yields in many countries have fallen to record lows, negative yield bonds appear frequently.

From the implementation of the negative interest rate policy of the countries to see, its policy intentions are not the same, the policy effect and impact are not the same, but these countries without exception are more confident in the policy.

The eurozone's negative interest rate policy has been implemented for a longer period of time, and its bank credit has a certain role in stimulating, and to a certain extent, also alleviate the pressure of debt, but the inflation rate to enhance the effect is not satisfactory; Japan's implementation of the three-tier interest rate system, the prime rate is still positive, negative interest rates are more like the Bank of Japan to reveal its determination to continue to loosen monetary policy.

At the same time Japan's inflation expectations are still weak, the yen exchange rate did not fall but rose, and even in the event of the European Union has become a hot safe-haven currency, this is with the Bank of Japan policy to implement the original intention of the opposite.

The euro zone and Japan's economic situation has its **** nature, low inflation, slow economic growth is more structural problems, such as population aging, consumer demand is insufficient, which calls for deeper structural reforms, the implementation of a combination of policies to inject vitality into the economy, relying solely on monetary policy seems to be insufficient impetus.

In China's case, it can actually be said to have entered an era of negative real interest rates since October 2015, when the central bank cut the benchmark 1-year deposit rate to 1.5 percent after real inflation stood at 1.6 percent that month.

There is still a long way to go before the policy of negative nominal interest rates, but in the context of the current global low interest rates, there is also a need to speed up the implementation of supply-side reforms related to the search for new endogenous drivers of economic growth, but also need to pay attention to the extent to which the implementation of negative interest rate policies in some economies will bring external spillover effects to China.

Baidu Encyclopedia - Negative Interest Rates

People's Daily Online - Geometry of the Impact of Negative Interest Rate Policies in Different Countries