Connect with us


Negative Rate and Level Rate: An Equilibrium



Negative Rate and Level Rate- An Equilibrium

In testing the boundaries of monetary policy, the central banks’ debate lead to focus on the ultra-low level of interest rates. However, in the length of time, investors have entertained the idea that negative rates are important too.

To define the two, A negative rate means the central bank and perhaps private banks will charge negative interest: instead of receiving money on deposits, depositors must pay regularly to keep their money with the bank. Whereas, the level of rates is the rate without the application of the interest rates.

Central banks are increasingly using negative rates to boost growth and raise the level of inflation. At present, it is really only commercial banks that are being charged negative interest rates but there is a possibility, if things get worse, that they will affect members of the public as well.

The idea is that negative interest rates provide banks with an incentive to lend money rather than to hoard it. The same would apply to members of the public, who would be encouraged to spend rather than save.

The step onto the option of nominal interest rates is also like stepping into the unknown. It is having some potentially serious consequences for the financial system like hoarding of the actual cash. The good thing is that it did not happen. However, the bad news is that also has some unusual anomalies like the Danish homeowners being paid interest on their mortgages. Despite these things, banks still have concerns that negative rates will affect badly the profitability.  What could happen more? The not-so-good reaction to the Bank of Japan with its decision to take negative has caused to take caution among central bankers.


Read more here…

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Copyright © 2023 The Capitalist. his copyrighted material may not be republished without express permission. The information presented here is for general educational purposes only. MATERIAL CONNECTION DISCLOSURE: You should assume that this website has an affiliate relationship and/or another material connection to the persons or businesses mentioned in or linked to from this page and may receive commissions from purchases you make on subsequent web sites. You should not rely solely on information contained in this email to evaluate the product or service being endorsed. Always exercise due diligence before purchasing any product or service. This website contains advertisements.


Is THE newsletter for…


Stay up-to-date with the latest kick-ass interviews, podcasts, and more as we cover a wide range of topics, in the world of finance and technology. Don't miss out on our exclusive content featuring expert opinions and market insights delivered to your inbox 100% FREE!