Today I bring to your attention a small educational program about what is negative discount rate. I already analyzed the concept itself (by reference), talking about what its increase and decrease leads to. Let me remind you briefly that this is one of the key financial levers at the disposal of the Central Bank of the state, with the help of which it regulates the inflation rate in the country, the national currency exchange rate and, globally, the pace of economic development.
The discount rate largely determines the cost of attracting and selling resources in the interbank market, the rates on loans and deposits for enterprises and the population. The higher the discount rate, the more expensive the resources, which slows down economic growth, but at the same time restrains inflation and devaluation. And, conversely, the lower it is, the stronger economic growth, but at the same time, inflation and devaluation are stronger.
The size of the discount rate can serve as one of the indicators of the state's economy: the lower it is, the higher the level of the country's economic development. For example, in the most developed countries, the current size of the discount rate is from 0 to 1%.
However, there is another side of the coin. Practice shows that even at excessively low discount rates, economic growth rates can slow down under the influence of other factors, which we are now seeing around the world. Similarly, inflation is falling, in many highly developed countries it is close to zero or even often negative (deflation). And this is by no means a good indicator, as many might think.
In such a situation it is very difficult to stimulate economic development countries. Judge for yourself: interest rates on loans are already minimal, loans are available to everyone, but this is not enough for the desired growth of the economy. And in such a situation, the Central Bank of the country can resort to such an extreme measure as setting a negative discount rate. What does this mean?
A negative discount rate, affecting pricing in the state capital market, leads to the formation, if not negative, then at least zero rates in the country's banking institutions. This suggests that when receiving a loan, the borrower not only does not pay interest, but can also receive a bonus from the bank for being credited, and the depositor, on the contrary, pays the bank extra for keeping his money on deposit there.
For us, this still seems like a fantasy, but for some countries it has already become a reality. A negative discount rate was introduced by banks of several European countries, and just recently - the Bank of Japan.
The largest values at the moment have negative discount rates in Switzerland and Denmark - there they are -0.75%. In Sweden, the discount rate is -0.5%, and in Japan - -0.1%. So far, there are only 4 countries with negative discount rates, but it is possible that other states may be included in their number. There has already been a lot of talk about setting a negative value of the discount rate, for example, in Israel, closest to zero since positive side discount rate of the Czech Republic (0.05%).
Why do central banks introduce negative discount rates? To stimulate business development and economic growth. If, according to the Central Bank, the country does not lend enough to business even at positive rates close to zero, then at zero and, especially, negative, loans will be taken more. On the other hand, people who keep savings on deposits, when they have to pay extra to the bank for this, will think about withdrawing them and investing in other instruments that contribute to the development of the economy, for example, in the same securities of enterprises.
The introduction of a negative discount rate can lead to both strengthening and weakening of the country's national currency. For example, when the Bank of Japan recently resorted to such a measure, the Japanese yen strengthened by about 10% against all world currencies in a couple of weeks, and this was even before the new conditions began to take effect. And in Switzerland, on the contrary, the establishment of a negative discount rate helped to slightly and briefly depreciate the Swiss franc, for which the country often spent enormous financial resources (to hold and maintain the exchange rate below the administratively set value, as a result, this measure was abandoned).
What are the negative consequences of introducing a negative discount rate? Well, for example, to banking failures computer systems, which calculate many indicators based on its value - a similar problem immediately arose in Denmark.
In many countries, the yield on government bonds held by both domestic and foreign investors is pegged to the discount rate. If the discount rate becomes negative, it turns out that now they will not only not receive income from the purchased securities, but also will have to pay extra for holding them.
Also, owners of savings in various pension, insurance, investment funds, the profitability of which is also calculated based on the level of the discount rate, may also be in losses.
As a rule, when introducing a negative discount rate, the Central Bank believes that this is a temporary last resort: when the planned indicators of inflation and economic growth are reached, it can be raised back and made positive. However, it is difficult to plan how things will actually turn out, it is likely that a negative discount rate will be in place in a number of countries for at least a few years.
That's all. Now you know what a negative discount rate is and what it is used for. Improve your level of financial literacy on the site. See you soon!
Negative interest rates. Reasons and expectations
Relevance of the topic. Negative interest rates are of interest to both economists and the public. Nevertheless, and in this case there are costs: money is subject to theft and physical destruction. Therefore, holding a currency is very expensive: it is necessary to protect it in large quantities, it is difficult to use it for large and remote transactions. Recently, interest in negative interest rates has increased significantly. They operate in Switzerland, Sweden and Japan, while over the past 10 years they have been introduced by the European Central Bank, the National Bank of Denmark, the Bank of Italy and the Netherlands Bank. Given the dynamics of interest rates in many of the world's major economies, there is a strong possibility that many other Central Banks will introduce negative interest rates.
The purpose of the work is to study negative interest rates. To achieve this goal, a number of tasks are solved:
1) to study the essence of negative interest rates;
2) to investigate whether negative interest rates always give a positive result for the country's economy.
The essence of the policy of negative interest rates (NIRP) is the introduction of a negative interest rate on bank deposits. This is a radical anti-crisis measure that the governments of a number of countries are using or planning to use in order to artificially inject additional money into the economy. In the economies of most countries, the central bank prints money and lends it to selected banks at a certain percentage, after which the money is distributed further within the economy. This percentage has a direct impact on inflation. If a large bank returned 10% to the central bank more money than it took a year ago, this means that the difference of 10% was withdrawn from the economy, there was less money, money became more expensive. In this way, banks target inflation by setting interest rates above the inflation rate. However, if inflation in the country is 1-3%, then there is no need to fight it. In this case, the central bank prioritizes stable economic growth. For these purposes, interest rates are reduced, making loans cheap, thus stimulating the economy to increase production and GDP growth.
But if interest rates are in the near-zero zone (as, for example, in the EU or the US), then, as the examples of many European countries show, negative interest rates should be introduced. Under the PPSP, the central bank lends money to banks at “negative interest,” which means that in a year, these banks will return less money to the central bank than they took a year ago.
Thus, additional amounts of money are injected into the economy of the state, money is rapidly becoming cheaper, inflation is growing, prices are rising. With negative deposit rates, it makes no sense for depositors to keep money in the bank.
Thus, the Central Bank encourages people to spend more, supporting the national economy. Interest rates on loans are also negative, but if you take into account all the commissions of the bank, you still get a small percentage. The loan still remains paid, but there is no longer a risk fee in the usual sense, in fact, borrowers pay the bank for its paperwork.
The main reason sane investors accept negative returns on their capital is that they believe that deflationary forces are accelerating forward and interest rates will fall further, but this cannot be predicted with complete certainty. However, the consequences of negative interest rates are great importance. In trying to overcome the generation of deflationary pressures, many governments have no choice but to rely heavily on central bank policies and strategies rather than other methods of changing financial market behavior. There are three macroeconomic instruments that governments can use in an attempt to stimulate demand growth:
fiscal policy;
monetary policy;
Currency policy.
As the world needs economic growth, the bankers and officials working in the treasuries in different countries try to manage investor preferences by focusing on risky assets rather than "safe" ones. With short-term interest rates of 0% (or lower), banks are penalized for holding large deposits with central banks. Regulators impose various fees on banks on these accounts. Consequently, some banks face negative interest rates at the stage of holding funds in reserves at the Central Bank. Central banks use negative interest rates on deposits as a monetary policy tool to prevent banks from depositing excess cash with central banks.
For example, the European Central Bank (ECB) set deposit rates at -0.2% from September 2014, which was a kind of punishment for banks that hold excess cash in the Central Bank. This is an extreme measure of monetary policy that includes changing interest rates, much like when central banks cut interest rates to stimulate economic activity. The EU countries are currently struggling with negative inflation, ie. deflation, and the ECB decided to cut interest rates on deposits below zero in order to funnel excess bank cash into the economy. In February 2015, Germany sold €3.281 billion in five-year government bonds with an average yield of 0.08%, i.e. investors were willing to pay the German government to lend out its debt. The euro area saw €1.5 trillion ($1.7 trillion) in negative-yielding debt deals in a wide range of countries, including Austria, Denmark, Finland, Germany, the Netherlands and Switzerland.
The justifications for investing in bonds that involve a guaranteed loss are as follows:
· Expecting negative returns. In line with the current deflationary economic environment in Europe, investors who purchase bonds with negative yields can expect yields to drop even further and this allows them to earn a return on investment;
Possibility of positive income. In countries where deflation is expected, investors may benefit by making a profit by investing in bonds with negative yields;
· Moving cash from more negative to less negative investments. Because some banks provide negative returns higher than government bond yields, investors prefer to take cash out of banks and invest in government bonds, which will cost less;
· Asset allocation policy. Some institutional investors are required to hold bonds in their portfolio, especially investors who specialize in fixed income securities because they may continue to invest in negative yield bonds in order to comply with this distribution policy;
· Expectations of currency appreciation. Foreign investors who expect the currency to rise in price against bonds with negative yields denominated in the national currency will agree to invest money in order to receive the expected positive yield in the national currency;
· Security fee. Foreign investors from emerging markets struggling with economic downturns, accompanied by defaults and currency devaluations, are agreeing to buy bonds with negative yields, characterized as a safe haven, in such European economic giants as Germany, Switzerland, etc.
There is a problem that near-zero rates make it difficult to accumulate assets that should provide retirement income. This could force people to act contrary to the ECB's expectations of saving more rather than spending.
Another important factor is the amount of cash: if there is a lot of cash in the economy, negative central bank rates and their further reduction have a limited impact. In Sweden, they are effective because it is already an almost cashless economy: cash in circulation there is less than 2% of GDP. In Switzerland, this figure exceeds 10% of GDP, and it is relatively cheap to keep cash, as there are large denominations of 1000 francs.
Sure, negative rates can help end a recession by encouraging people to spend more, but they can also create inflation, which is definitely better than deflation. But if inflation in Japan is rather desirable, then inflation of more than 4-5% in the European Union and Britain can lead to very serious consequences, comparable to the Great Depression in the United States. In this case, it is not so much inflation itself that is dangerous, but the shock from it. Also, with high inflation, there is, albeit small, but the likelihood that EU members will abandon the euro, since it is the single currency that can cause a whole chain of financial crises in the EU countries.
So, the policy of negative interest rates has both advantages and disadvantages. On the one hand, it encourages people to spend more, thus revitalizing aggregate demand and production. On the other hand, such a policy carries huge risks: the population simply starts investing in assets with great risk, regardless of the fact that the conditional state wants to increase aggregate demand.
People will make savings, despite the fact that they are actually being taken away from such a reliable instrument as bank deposits.
The only question is where the money will go - in gold, real estate, securities or cash, and what risks such a movement of capital will generate.
Now, six European and Japanese central banks have negative rates.
Moreover, the unforeseen side effects. For example, both the yen and the euro rose, although the central banks of these regions are increasingly easing monetary policy, and the US Federal Reserve is gradually tightening it.
So, in March 2015, when the ECB launched a €1.1 trillion bond buying program, the euro exchange rate was $1.05, and now it is $1.13. And this despite the fact that in March 2016 the purchase volume was increased to 1.5 trillion euros, and all three main ECB rates are already in negative territory (the first decrease below zero occurred in 2014).
In addition, central banks themselves are suffering from extremely low and negative interest rates, according to a survey of foreign exchange reserve managers of 77 central banks conducted by Central Banking Publication and HSBC bank (as of August 2015, they managed $ 6 trillion).
Of these, 80% said negative rates affected their portfolio management strategy, and 60% said their central bank. Most change their strategy, including buying more risky instruments.
After all, a number of government and even corporate bonds with a high rating are now traded with negative yields. Central banks need to conserve capital, so investing in securities they have to lose money on is counterintuitive. To earn returns, they have to be more aggressive and, in some cases, take on more risks.
The Swiss National Bank, in order to contain the strengthening of the franc, made the deposit rate for commercial banks negative. There are no deposits left in a Swiss bank without negative rates.
Banks in Sweden, Denmark and Switzerland have struggled to offset the negative rates by increasing the cost of loans - mortgages in particular - and by charging higher fees. As a result, the cost of loans increased, not decreased.
The essence of the problem is this: the markets are no longer sure what the introduction of low rates in a number of countries will lead to. Peter Prat, chief economist at the European Central Bank, said last week: "As other central banks have demonstrated, we have not reached the physical bottom yet." As long as this uncertainty remains, it is difficult for banks to know whether new loans are economically viable, and it is difficult for investors to properly value bank assets. After cutting the ECB deposit rate by another 10-20 basis points, the impact on bank profits could become exponentially negative.
Denmark and Switzerland sought to cushion the blow with tiered schemes that were supposed to tax only excess deposits and deter foreign investors from pulling money out of the market. The ECB is trying to implement an alternative scheme: a new targeted long-term refinancing operation, through which it will pay banks for lending. But this does not fully offset the resistance of negative rates. I estimate that only 5 to 15 percent of the 1.5 trillion TLTRO increase will be selected. This estimate is based on a survey of the largest banks in the Eurozone at the Morgan Stanley's Financials conference last week. Among the banks of northern Europe, there are practically no those who would claim these compensations. In other words, nearly half of TLTRO could end up being the old funding operation of subsidizing the rate without new loans.
For banks, the indirect effects of negative rates could be more importance than a direct effect. There is a risk that liquidity in the market will decline as low rates mean that financial intermediaries will hoard high-yielding assets. There is also the question of how money market funds, which help many corporations manage their finances, will hold up in a negative rate environment. In Japan, all 11 companies that manage money market funds have stopped accepting new investments.
Some money managers are buying or "seriously considering" buying asset-backed bonds and exiting negative-rate currencies, the survey found. One said that central banks are buying longer-term, higher-yielding bonds, even if those bonds are less liquid.
Reserve managers are also suffering collateral damage from negative rates.
They face the same problems as everyone else. But they are well aware that there are much more important things than the return on their reserves.
In January 2016, the Bank of Japan surprised the markets by setting the interest rate on bank deposits at -0.1% from mid-February. So he wanted to stimulate economic growth, lending and inflation. But the experiment led to unexpected results. Activity in the money markets has decreased, at the same time, the demand for government bonds has increased, although the yield of many of them is negative.
The yen did not fall against the dollar, but rose to a maximum in a year and a half.
Bank of Japan Governor Haruhiko Kuroda said he was ready to ease policy even further if needed.
But financial market participants are not so sure about the effectiveness of negative rates.
The level of rates has little effect on the demand for loans, and the market is losing its purpose.
Lower interest rates usually result in a weaker currency, which benefits exporters.
This is the key goal of the so-called Abenomics, a package of measures adopted by Prime Minister Shinzo Abe.
But the yen has strengthened this year amid uncertainty in global markets and a depreciation of the dollar.
In addition, foreign investors suddenly entered the Japanese bond market - they were attracted by the possibility of super-cheap financing in yen.
As a result, the yen rose, as traders are confident that the Bank of Japan now has no opportunity to significantly ease policy. There is no guarantee that rate cuts will boost corporate investment and encourage households to prefer investment over savings.
Kuroda predicted that banks would increase lending, but they began to look for better investment opportunities abroad.
According to the Ministry of Finance, in March, Japanese investors purchased foreign securities for 5.47 trillion yen ($50 billion) - 11% more than in February.
Because of this, investors from Japan have increased the demand for dollars, and they began to borrow them from foreign financial institutions. Those, in turn, raised commissions (for example, on three-month contracts - almost doubled) and began to invest the received yen in Japanese government bonds, traders say.
Although their returns are negative, due to the high commission, foreign investors still benefit. According to the Association of Securities Dealers of Japan, the net purchase of Japanese government bonds by foreign investors increased in February compared to January by 16% to 18.3 trillion yen ($167.4 billion). And their net purchases of mid-term bonds in February were twice the 12-month average.
Even strong demand for dollars from some Japanese investors could not prevent the rise in the yen.
There is no reason to strengthen the yen against the backdrop of negative rates. But worries about China and the global economy have given the yen the status of a safe haven. At the same time, there are doubts about the effectiveness of Abenomics.
Directly negative rates can be seen as a technical point in the policy of central banks to stimulate economic growth.
However, their appearance can be given another explanation if we rise to a higher level of abstraction from numbers and quantitative dependencies.
If the economy is viewed as a living organism that is trying to restore its vitality, then negative rates and negative bond yields can be defined as ways in which the economy tries to solve the problem of reducing liquidity, although in form such actions of central banks, on the contrary, look like an attempt to increase liquidity in the economy.
Conclusion. The main advantages of zero interest rates include lowering the cost of capital and increasing the role of refinancing, and the disadvantages of depreciating the currency and encouraging excessive borrowing. Thus, the negative aspects of zero (negative) interest rates prevail over the positive ones, so their application has an extremely negative effect on the economy and leads to crises. Negative interest rates are a high-risk experiment.
Negative rates helped weaken the Swedish and Danish kronas, buoying exporters in those countries, but this has not happened in Japan: the yen continues to attract capital from abroad because investors continue to consider it a safe haven. Switzerland,
Sweden and Denmark use negative interest rates mainly to weaken the exchange rate national currencies in order not to lose a competitive position on the world stage as a result of higher import prices. The European Central Bank (ECB) and the Bank of Japan use negative interest rates mainly to stimulate economic growth by fighting deflation.
The Russian banking community came up with the idea to introduce negative interest rates on foreign currency deposits. The Central Bank did not support the initiative. As a result, banks may refuse to accept euro deposits from the public.
Why is the Central Bank against
Commenting on its decision, the Central Bank gave two arguments. Firstly, “the practice of setting negative rates exists only in certain countries of the eurozone and for certain transactions”; secondly, it can “lead to the accumulation of large volumes of foreign exchange liquidity outside the banking system”, that is, to the growth of the shadow foreign exchange market.
The Central Bank may have other reasons to object to the introduction of negative rates on client foreign currency, bankers say. “In addition to the business component, there is an image component. Many clients, especially individuals, may take negative rates negatively,” said Andrei Stepanenko, deputy chairman of the board of Raiffeisenbank. Mikhail Matovnikov, chief analyst at Sberbank, agrees that "the appearance of negative rates is a rather serious negative."
The banking community can solve the problem on its own. It is easier for bankers to stop attracting liquidity in euros by removing the corresponding deposits from their product line for individuals, market participants point out. “As for individuals, the way out may be to stop attracting new deposits in euros,” Stepanenko told RBC, adding that Raiffeisenbank is considering such a possibility. In his opinion, other players can choose this strategy as well. As a result, Russians' ability to diversify their savings will shrink.
However, while in the banking community there is no consensus on this matter. Sberbank and Citibank declined to comment on rates plans. “As for VTB24 and the retail business of VTB Bank, there are no plans to adjust the yield on foreign currency deposits in the short term,” said a representative of the VTB Group.
It will be more difficult for banks to go the same way with respect to legal entities. “Good corporate clients are critical for most banks, and no one will refuse them because of losses on borrowed euros. Banks will have to solve this problem by improving the work of their treasuries, ”a manager of one of the top 30 banks in terms of assets told RBC.
In his opinion, the problem did not appear yesterday, but with proper management of liquidity flows, it can be resolved. “Most likely, the appeal of the association to the Central Bank was caused by a surge in liquidity inflows in euros from clients of some specific banks, which they quite reasonably backed up with a reference to the general, not the most simple situation on the market.”
It is possible, RBC's interlocutor notes, that in recent months the situation has been aggravated by the accumulation by Russian companies in their accounts of foreign currency, including euros, to pay for external debts. In the first quarter of 2017, according to the Central Bank, these payments should amount to more than 15 billion in dollar terms.
SaveThe Bank of Japan introduced a negative interest rate on new deposits that Japanese banks place with the Central Bank. This measure should stimulate economic growth
The building of the Central Bank of Japan (Photo: AP)
On January 29, the Bank of Japan announced that it was introducing a negative interest rate on excess reserves, namely on new deposits that credit institutions place with the Central Bank. The rate, which now stands at 0.1%, will be up to -0.1%. Reducing the deposit rate to negative values makes it unprofitable for banks to place funds on the accounts of the Central Bank - instead of receiving income, they are forced to pay the regulator. It is assumed that in this case the funds, instead of going to the accounts of the Central Bank, will be invested in the economy.
The negative rate will apply only to the reserves that the Bank of Japan accrues to commercial banks during new rounds of repurchase of securities from the financial sector. Pre-existing reserves, estimated by The Financial Times to be as high as $2.5 trillion, will still be subject to an interest rate of 0.1%. Bloomberg writes that the new rules will come into effect on February 16.
The Central Bank will also buy government bonds, securities of real estate investment funds, as well as exchange-traded funds in order to expand the monetary base.
Simultaneously with the introduction of a negative interest rate for part of the excess reserves, the Bank of Japan maintained the program of repurchasing securities. It reaches ¥80 trillion ($666 billion) a year. Aggressive monetary measures are designed to stimulate inflation. The Bank of Japan intends to bring it up to 2% per year - a level considered optimal for developed countries. According to the organization's forecast, this goal is achievable by the period between March-October 2017. In December 2015, the annual inflation rate was 0.2%. Rising inflation, in turn, will have to stimulate the growth of the economy, which in Japan in last years stagnated and only recently began to show signs of recovery.
According to updated data, in the third quarter of 2015, the country's GDP grew by 1% in terms of annual dynamics. But industrial production, according to statistics from the Ministry of Economic Development of Japan, in December fell by 1.4%.
The super-soft monetary policy of the Bank of Japan is at odds with the actions of the US Federal Reserve. In mid-December last year, the Fed raised its key rate for the first time in nine years. Prior to this, the Fed abandoned large-scale interventions in the securities market. Thus, the policy of "quantitative easing" (low key rate and buyback) that has been in operation in the US since 2009 has been completed.
Recall that since October 27, 2014, this interest rate has been at a historically low level in Sweden: 0%. Now she is on the downside.
At the same time, Riksbanken is buying government bonds worth 10 billion crowns and is ready to buy more, according to a press release from the central bank.
Riksbank analysts suggest that low inflation, which in December was at minus 0.3% - in terms of the pace of development for the year, may have already reached, so to speak, the "bottom" and will now begin to rise. In any case, the goal of 2% inflation per year is still far away.
Analyzing the situation in the outside world, the Riksbank concludes that the global economy is "recovering" after the financial crisis, but slowly. Since December last year, however, the risk of a downturn in the economy has increased. In particular, the fall in oil prices, which may have a positive effect on production growth, on the other hand, leads to low inflation on a global scale. The situation in Greece also does not add confidence in the development trends of the world economy.
With regard specifically to Sweden, here the Riksbank believes that production growth is facilitated by both low prices on oil, as well as the weak exchange rate of the Swedish krona, and the low interest rate of the bank. According to the bank, Sweden's GDP will grow faster and the labor market will strengthen.
What will this "minus rent" entail for the people of Sweden: What will happen to bank loans? What will happen to the money that people put aside "in reserve" in their deposit bank accounts? What will happen to our mortgage loans?
The negative refinancing rate means banks have to pay to deposit money into their Riksbank accounts. And they are obliged to do this if, as a result of all banking operations of the current day, they have money in the cash desk (overnight/overnight deposits).
But will this mean that banks will want to cover these costs at the expense of their customers? And will they start charging us for wanting to deposit our savings into a savings bank account?
In principle, the interest rates on our accounts or mortgages should not be affected by this negative rent. Because the level of interest on deposit accounts and on loans is determined by each bank individually, and not by the Riksbank.
But for the banking system as a whole, the level of this short-term refinancing rate is of great importance.
This rate determines the interest that banks pay when they borrow money from each other. It can also lead to enterprises being able to borrow at lower interest rates. And this, in turn, can lead to an increase in investment, that is, to exactly the stimulation of the Swedish economy, which the Riksbank is striving for by lowering the interest rate. And the growth of production usually "launches" the mechanism of rising inflation. This is what the Riksbank is trying to achieve.
Experience of other countries with "negative" interest rate shows that if this minus is small, then this does not affect small clients who habitually save money in bank accounts. In Denmark, FIH announced in March last year (following a rate cut by the central bank) that for every 1,000 kroner a customer holds in the bank, they will have to pay 5 Danish kroner. According to the Wall Street Journal, customers have already begun to leave this Danish bank. What will happen if other banks follow the FIH, the newspaper Svenska Dagbladet rhetorically asks in its economic supplement today.
Anticipating today's move by the Central Bank, two directors of large Swedish private banks have already spoken out on this subject and assured their clients that they - that is, all of us - will not have to pay to keep their money in the bank.
These two directors are Annika Falkengren from Svensk Enshild banken/ SEB and Mikael Wolf from Swedbank.
Mikael Wolf from Swedbank assured (in an interview with the Ekot newsroom) Swedish Radio that banks will do everything to protect their small depositors. Because otherwise, they - these depositors - will simply take their money from the bank and hide it, as they say, "under the mattress." However, neither he nor his colleague Annika Falkengren can give any guarantees. No one can guarantee that "negative rent" for banks will not turn into equally negative rent for small depositors.
Expert in private economic affairs (microeconomics) Annika Creutzer, for example, believes that "negative rent" will affect not only how and where people save their money, but also the level of wages. Here is how she explains the impact of this interest rate cut:
This means that when banks borrow money from the Riksbank, it (the Riksbank) charges for it. 0.1 percent. This means that banks will want to give us, customers, even more loans and credits, and these loans will cost us less. But there will be no interest on savings at all, this is a new situation for us. We may also have to pay to open a savings account in some bank, says Annika Kreuzer, expert and journalist.
She describes inflation as a kind of "lubricating oil" of the economy and explains its necessity by the fact that you need to pay for goods and services. The aim of the Riksbank is to keep inflation low and stable. But now, with increased anxiety and turbulence in the global economy since December last year, the Riksbank is cutting interest rates and buying 10 billion crowns worth of government bonds. The situation, however, is not unique to Sweden, says Annika Kreuzer:
This is an international problem. Sweden is a small country with an open economy, large exports and imports. We are influenced by what is happening in the world. What is happening now in Sweden has already happened in Denmark and Switzerland.
Falling oil prices, troubles in the Eurozone, limping US production growth and the economic crisis in Greece are all affecting the Swedish economy. And it could be years before things change, she says.
How will today's interest rate cut affect ordinary people? She answers this question:
I don't think there will be any change in mortgage loans. But savings in the bank lose all meaning, because there is no interest on them. But it’s better to keep money in the bank, even if it doesn’t grow there, than at home under the mattress. Just for security reasons, Annika says, implying that you should not expose yourself to the risk of robbery, home theft, if you hide money at home.
Annika Creutzer suggests that banks may increase fees for savings accounts. It is hardly worth hoping that interest on deposits will increase. But what is important, she emphasizes, is to check: does the bank have state guarantees for deposits? So that this money does not "melt" in the account, over time.
As for the impact of a negative interest rate on the level of wages, it suggests the following scenario:
It is likely that employers will say: since we are not paid more for our goods (ie there is no inflation), then we cannot raise wages either. It is possible that for some categories of workers this will mean lower wages, said Annika Kreutzer in an interview with our colleague Isabelle Swahn