The European Central Bank doubled down on its negative rate policy on Thursday, ...
LONDON - The European Central Bank doubled down on its negative rate policy on Thursday, meaning banks will now have to pay 0.5% interest simply for depositing much of their spare cash with it - an attempt to make them lend more to kickstart the economy.
To battle the global financial crisis triggered by the collapse of Lehman Brothers in 2008, many central banks cut interest rates near zero. A decade later, interest rates remain low in most countries due to subdued economic growth. The Bank of Japan adopted negative rates in January 2016, mostly to prevent an unwelcome strengthening of the yen from hurting an export-reliant economy. It charges 0.1% interest on a portion of excess reserves financial institutions park with the BOJ.Aside from lowering borrowing costs, advocates of negative rates say they help weaken a country’s currency by making it a less attractive investment than other currencies.
There are also limits to how deep central banks can push rates into negative territory - depositors can avoid being charged negative rates on their bank deposits by choosing to store actual banknotes instead.The BOJ adopts a so-called “tiered” system under which it charges 0.1% interest only to a small portion of excess reserves financial institutions deposit with the central bank. It applies a zero or +0.1% interest rate to the rest of the reserves.
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