What is Negative Interest And Why is It Applied?
In the recent days, following the monetary expansion and word-of-mouth which are added to the policy instruments of the central banks by the global economic crisis, the agenda is occupying “negative interest”.
What is the negative interest?
Negative interest, which is a monetary policy introduced to stimulate the economy, reduces central banks’ interest on the current accounts held by the banks themselves. So the bank tells me, “I do not pay interest for the money you invest in me, I get paid for it. Negative interest rate application aims to lower borrowing costs for companies and increase loan demand.
Why is negative feedback applied?
Despite the applications like monetary expansion, , low interest rates, the negative effects of the global economic crisis still cannot be solved in many countries’ economies.
China-centered developments, the fact that economic recovery in Europe is still not at the desired level, low demand, weak global economic activity, as well as inflation, is well below the 2 percent target.
All these developments are known as “a method not referred to in healthy economies” but the central banks of the developed countries are using the use of the “negative interest” weapon.
Among the reasons for countries to go into politics is “to provide competitive advantage in trade“. Because countries will lose their local currency when they are negative, they have a competitive advantage in exports. This leads to “currency battles” with the application of negative interest.
Risks of negative interest rate
In countries that implement a policy of negative interest, the actors in the economy may prefer to keep cash money in their casks instead of banks to pay interest. For this reason, the concern that the actors in the economy will demand cash money is described as “the most important risk” in the negative interest rate policy.