Europe’s central banks have used negative rates since the start of the decade. They charge lenders for the money they park in a central bank’s deposit facility above a certain threshold, in the hope that this will force commercial banks to lend more. In September, the European Central Bank (ECB) cut its deposit rate further to -0.5% (while introducing some exemptions for banks through a system called “tiering”).
(Nov 18): The titans of finance have a new foe, and it’s not UK Labour party leader Jeremy Corbyn or senator Elizabeth Warren. Wall Street’s elite are attacking Europe’s central banks over their reliance on negative interest rates, saying they are hurting the economy.
Monetary authorities do need to be mindful of the side effects of unconventional measures. But there is little evidence that negative rates are proving harmful. Indeed, they might be more effective still if bankers passed them on to consumers more.
