What do negative interest rates mean in practice?

These are strange times for European borrowers. It’s as if they live through the looking glass, where all the rules of financial existence are turned inside out. How do you like a business loan with an interest rate minus 0.1%? Yes, banks now pay their borrowers extra for taking out loans. Of course, you have to pay additional fees, and they make the loan still traditionally paid. But the bank’s remuneration is now no more than a percent or two. The oddities don’t end there.

Investors provided Germany with about $ 4 billion of its funds. They have already provided this week, knowing that they will not get all the money back, the same negative interest rates rule the ball. And after all, not only government bonds have become unprofitable for investors, but also securities of individual corporations, such as the Swiss Nestle, for example.

On the other side of zero

Such “through the looking glass” incidents are the negative side of all actions taken by the region’s politicians for the sake of reviving growth. The policy is in despair and that is to encourage lending and spending, they reduce the rate to unimaginable heights. More precisely, the lowlands. Bankers, looking at negative interest rates that have become political decisions, only shrug their shoulders.

Of course, consumer and mortgage loans with negative rates are still rare, although some people are really lucky. While most banks are still considering their actions in the current circumstances, individual lenders have taken the actions of their Central banks as a direct call. But depositors were much less lucky, the negative rate for them turned out to be unprofitable, now they have to pay banks for what they will use their deposits.

Negative interest rates in politics

Strange? Possible, but understandable. Politicians, together with their Central banks, resort to very drastic measures in order to breathe life into the economy and support inflation that is trying to collapse below zero. At the head of all, the ECB with its intention to print money for the “wholesale” purchase of government bonds of Eurozone members.

Switzerland took the course of its franc from the Euro, which plunged the markets into shock lowers key interest rate to a negative figure. The Central Bank of Denmark lowered the rate as much as 4 times in just a month. Now in this country, the main rate is -0.75%. Sweden followed suit. And what is happening in the European securities markets is a topic worthy of economic research.

Back to consumers

While some are very surprised to read in the terms of their loan agreements, where it is indicated that the rate on their agreement is negative, which means that the bank will pay them for the loan… additional, others are no less surprised to receive information that they will have to pay for their deposits. That instead of earning money, bank deposits became sources of direct losses. Let’s say small, usually no more than 1%, but still.

Of course, all these incidents have not yet taken a mass character, and therefore depositors can still transfer their money to other banks. And European bonds are still an excellent alternative to emerging market bonds.

In Europe, the fall in interest rates on loans is not yet expected. Therefore, businessmen have to include other expenses as well as expenses for servicing bank loans. However, despite the rise in price, business loans have not become more affordable, banks are still very demanding of entrepreneurs. Still, it is possible to take out a business loan-if certain rules are followed, of course.

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