U.S. President Donald Trump has suggested that the U.S. Federal Reserve drive in...
- U.S. President Donald Trump has suggested that the U.S. Federal Reserve drive interest rates into negative territory. He says his motivation was to refinance the U.S. government’s $22 trillion in outstanding debt and lengthen the amount of time over which it is repaid.
Once considered only for economies with chronically low inflation such as Europe and Japan, however, the idea is becoming a more attractive option for some other central banks to counter unwelcome rises in their currencies.WHY HAVE SOME CENTRAL BANKS ADOPTED NEGATIVE RATES? The European Central Bank introduced negative rates in June 2014, lowering its deposit rate to -0.1% to stimulate the economy. Given rising economic risks, markets expect the ECB to cut the deposit rate, now at -0.4%, in September.
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 hold physical cash instead.The BOJ adopts a 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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