Financial encyclopedia

Are there advantages and disadvantages of negative interest rate policy to stimulate the economy?

The Bank of Japan started to discuss interest rates today. The market expects that there will be no major policy changes at the meeting and the "negative interest rate policy" will be maintained.

What is the negative interest rate attack strategy?

The Bank of Japan implemented it in early 2016, and the central bank reduced the policy interest rate to "negative", so the reserves deposited by banks in the central bank could not receive interest but had to pay "penalty interest".

How to affect depositors?

Depositors deposit money in the bank without interest, and the bank also charges interest on depositors. Suppose the interest rate is negative 1%, and deposit $100, and after one year, it will only be net $99.

How to stimulate the economy?

1. Bank deposits to the central bank must pay interest.

2. Forcing banks to increase lending to enterprises and individuals

3. Promote investment and consumer demand

4. Achieve the goal of stimulating the economy

What are the disadvantages of negative interest rates?

Bank profits are under pressure

Interest income decreased, lending margin narrowed, and interest margin narrowed, which hit the banking industry.

Asset bubble

The capital flows to different assets to make assets bubble, and when the interest rate returns to normal, the bubble may burst.

currency devaluation

Negative interest rates devalue the country's currency, which is good for exports, but the situation continues, and countries are afraid of falling into a vicious circle of competition.

Deposit reduction

Negative interest rates drive away depositors, and the funds that banks can borrow also shrink.

The emergence of the "negative interest rate policy" is to stimulate the Japanese economy. When the Japanese economy continues to cool down, the Bank of Japan needs to examine whether to cancel the "negative interest rate policy", which will stimulate the yen to strengthen.