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Established in 2006 as a Community of Reality

Welcome to the Neno's Place!

Neno's Place Established in 2006 as a Community of Reality


Neno

I can be reached by phone or text 8am-7pm cst 972-768-9772 or, once joining the board I can be reached by a (PM) Private Message.

Established in 2006 as a Community of Reality

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Is the world approaching the farewell of the era of "negative interest"?

rocky
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Is the world approaching the farewell of the era of "negative interest"? Empty Is the world approaching the farewell of the era of "negative interest"?

Post by rocky Sun 28 Oct 2018, 2:12 am

Is the world approaching the farewell of the era of "negative interest"?


Is the world approaching the farewell of the era of "negative interest"? 10821

After years of negative interest rates in a number of central banks in developed economies such as the European, Japanese, Swedish and Swiss central banks, this period seems to be nearing completion.
In addition to the European Central Bank's intention to stop buying bonds starting next year, which is the most important thing for the period associated with negative interest rates, the central bank announced that the rate hike is imminent.
What are the SBA interest rates and when to apply?
Negative interest rates on borrowing are an unconventional method of monetary policy, which means that interest rates are set at negative values ​​of zero.
The implementation of this policy means that the central bank as well as private banks can offer negative rates of borrowing, rather than receiving money on deposits, depositors have to pay regularly to keep their money inside the bank.
This type of policy aims to push banks to lend money more freely, and individuals and companies to invest and spend money instead of paying fees for safe keeping in banks.
This type of monetary policy uses deflationary times, as individuals and companies often resort to the accumulation of funds rather than spending and investing them. Ultimately, the result is a collapse in aggregate demand, lower prices, slower real production and higher unemployment.
The first time there was a negative interest rate in central banks after the global financial crisis, economic theory assumed that the maximum low interest rate was zero, while any lower fall would mean depositors would withdraw their money from banks.
 
This policy is defined as expansionary or loosely used in times of economic recession. However, if deflationary strength is strong enough, lowering interest rates on a negative scale is likely not enough to stimulate borrowing and deposit.
How to apply?
Negative interest rates are used as a last resort in the face of economic contraction and the pursuit of growth, in other words, the way in which other traditional policy patterns demonstrate their inefficiency or failure.
In theory, the application of negative interest rates reduces borrowing costs for businesses and households, stimulating investment and consumer spending.
Central banks lend to their counterparts, and when interest rates fall below zero, central banks can make commercial banks pay interest to keep their money in the central bank's possession.
Commercial banks at the same time can cut interest rates from consumers in the same amount and recover their money.
Negative interest results
The main objective of any negative interest rate is to increase economic activity and stimulate inflation from low levels or even deflation.
This can be achieved by banks lending more to households and businesses rather than keeping money, and companies can invest more by financing investments that are now cheaper.
Negative interest also leads to lower household savings, borrowing and spending.
And may lead to a drop in demand for the currency, which will lead to an increase in prices of imported goods and increasing demand for the country's cheap exports now.
Switzerland aims to reduce the interest rate at the negative range to prevent investors from taking on the local currency (franc), which is a safe haven currency, as the high value negatively affects the economy based on exports.
Which banks apply negative interest rates?
Sweden's central bank was the first bank to apply negative interest rates in July 2009 when it cut borrowing rates to -0.25%.
In 2012 the central bank in Denmark went the same way, and in 2014 a number of central banks such as Switzerland and the European Central Bank applied that policy.
In 2016, the Japanese central bank cut interest rates at the negative range as this pattern is still in use there.
The implementation of the monetary policy due to economic problems, notably a sharp decline in inflation and economic contraction, and all those banks are still committed to negative interest rates so far.
But the central bank in Sweden announced last week its intention to raise interest rates again, while the European Central Bank is expected to start raising interest rates after the summer of 2019.
Negative interest risk
The biggest risk associated with negative interest rates is that it is unknown at which point people, companies and financial institutions will want to sell all their bonds and withdraw their deposit and claim money instead.
As this pattern is applied, it is not known where the minimum exists and inadvertently reaching this point may lead to confidence in the financial system and its smooth operation.
There are many tools and ways by which risks can be mitigated. The central bank can remain ready to help banks that lose their deposit and central banks can limit cash distribution, but these ideas have political and controversial problems.
At the very least, it is possible that the minimum will lead the central bank to raise interest rates again.
There are also other risks related to the length of the period of maintaining low interest rates instead of normal rates. Negative rates of interest can, in the long term, distort financial markets and increase the risk of financial instability.


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