The Central Bank rejected the idea of ​​introducing negative rates on foreign currency deposits. Negative discount rate What is negative bank interest

At first glance, the policy of negative interest rates (NIRR) looks like a paradise for both the population and business.

Which of us would refuse a loan at, say, two percent per annum? If you take out a mortgage at this percentage, and even for 30 years, it turns out that buying an apartment will cost much less than renting. It would seem how great it would be to live in the West, where mortgages are often issued at such low rates!

Experience, however, has shown that low interest rates have worked in the opposite way in the United States and Europe, making housing unaffordable for a record number of citizens.

The “paradox” is explained simply: the lower the loan rate, the more citizens can spend on apartments. Since there are a limited number of apartments, their prices are rising. Well, as prices rise, buyers with average incomes find themselves left out, since not every American can afford to buy a house made of sawdust for a million dollars.

To illustrate the problem, it is enough to mention a couple from San Francisco who semi-legally rent out container cabins to those residents of the city who do not have two or three thousand dollars to rent at least some apartment. For the opportunity to live in a metal container, the unfortunate people pay $600 a month.

Low interest rates and pension funds are killing: you can now invest money in reliable dollar securities only at zero percent per annum. This, of course, is not enough for normal functioning, so pension funds in the United States now have to either cut pensions or gamble, investing, for example, in bonds of Tajikistan and Ecuador.

However, the real sector of the economy fares the worst. It would seem that cheap loans are a businessman’s dream: you can quickly expand production and easily close any cash gaps. However, in practice, it turns out the same way as with a mortgage: it turns out that cheap loans are only good if you have access to them, and your competitors do not.

A capitalist economy operates through a few simple mechanisms, the main one being competition. Bad businessmen take losses and leave the market, leaving the best on the playing field: those who make dollars and ten cents out of a dollar every year. Banks should speed up the process of selecting the best by providing loans at 6-12% per annum.

This system of natural selection worked well in the United States until the turn of the millennium, and the country’s economy developed especially well in the early 1980s, when loan rates jumped in places to as much as 20% per annum. Unfortunately, after the dot-com crisis, the US Federal Reserve decided to lower lending rates to almost zero, and market mechanisms that had worked for centuries began to jam.

Let's imagine two businessmen, John and Bill. John works normally, receiving his few percent of profits and looking confidently into the future. Bill doesn't know how to work, he only has losses. At normal lending rates, Bill would have gone bankrupt pretty quickly and cleared the market for John. However, now Bill can take out a loan from a bank at a very low interest rate and... continue to work at a loss. In two or three years, when the money runs out, take out another loan. And then another and another, thereby delaying their bankruptcy indefinitely.

A skillful businessman, John is forced, willy-nilly, to follow Bill: to reduce prices below the level of profitability, so as not to lose customers in this unhealthy market. As an example, we can point to American shale producers, most of whom, at normal lending rates, would have gone bankrupt long ago, thereby returning oil prices to a healthy level of $100 or more per barrel.

Let's add to this unsightly picture monopolies and oligopolies, which cheap loans allowed to grow uncontrollably, and the portrait of the disease will perhaps become complete.

We observed something similar in the USSR in the 1970s and 80s. The Soviet authorities did not have enough political will to close inefficient enterprises, and they gradually degraded, producing products of lower quality and less and less in demand by the economy. The hothouse conditions led to a logical result: when, after the collapse of the USSR, domestic industry was thrown into the arena with the capitalist tigers, during the first years it was practically unable to provide them with worthy resistance.

Exactly the same thing is happening now in the West. Of course, the central banks of the United States and the European Union are well aware that POPS is a dead end, but it is no longer possible to return back to healthy capitalist lines. Raising interest rates to a level of at least 5% per annum is guaranteed to kill businesses that have become hooked on cheap loans.

Unfortunately, this problem no longer has a good solution. If the USSR had at least a theoretical opportunity to follow the example of China by gently reforming the economy (instead of handing it over to the slaughter of pro-American reformers), then our Western friends and partners simply no longer have such an opportunity. Printing presses have produced so much money over the past 15 years that it is unlikely that it will be possible to get out of the crisis without massive bankruptcies and hyperinflation.

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The other day, a user of the well-known information and entertainment community “Pikabu” on the Runet reported that recently the German bank Solaris has been offering a negative interest rate of -5% per annum. That is, a client can take out a loan of 1,000 euros, and only need to pay back 948 euros.

We decided to find out how this is possible, and why such loan offers do not surprise anyone in Europe.

Why does the bank issue a loan with a minus rate?

The use of negative interest rates is no longer new in the global economy. The first country where banks began to “pay extra” to their clients was Japan. At the end of the last century, the government faced a long recession, which led to a decrease in consumer prices in the domestic market (deflation). The country's leadership decided to stimulate the economy by increasing public debt and negative interest rates.

Later, this practice began to be used by European countries. In 2012, the National Bank of Denmark established a negative rate on weekly certificates of deposit. At the same time, the European Central Bank began to actively reduce the base interest rate.

In June this year, the ECB once again set the interest rate at zero and the deposit rate at -0.4%. The deposit rate is similar in Germany. It is this indicator that banks focus on when setting rates on loans and deposits.

Therefore, the negative rate in the German bank Solaris is natural in the context of the pan-European policy of quantitative easing.

It is worth noting that loans with minus rates are not a general trend among German banks. For example, Noris Bank issues loans at a rate of 2.90%, but can also set a minus rate if necessary.

Solaris took advantage of the opportunity to attract new customers and obtain their data using a loan at a minus interest rate.

Loan with a negative rate from the German bank Solaris

According to the user who posted about this bank, in Germany there is high competition among credit institutions that find it difficult to find new borrowers.

The vast majority of Germans have an account in the bank where their grandfather and great-grandfather are,” he noted.

Therefore, Solaris management probably hoped to use a loan with a negative rate to find new clients among young people in the hope of further cooperation with them.

Have there ever been real cases when a bank paid its borrower?

In 2016, Danish man Hans-Peter Christensen, who took out a mortgage loan at a floating interest rate from a local bank, received 249 Danish kroner ($38) from his lender. Then, in the fourth quarter, the deposit rate was -0.0562% (now - -0.65%). Along with Christensen, other mortgage borrowers also received similar rewards.

In what other countries can there be a negative interest rate on loans?

In addition to Germany and Denmark, negative rates are now in force in Sweden, Switzerland and Japan. For example, Switzerland recently set the deposit rate at -0.65%. However, we were unable to find loan offers with a negative rate on the websites of local banks. Just in May last year, Bloomberg reported that Switzerland's largest bank, UBS, would set a negative rate on deposits whose account value exceeds 1 million euros.

In Japan, the deposit rate is -0.069%. We know nothing about consumer loans with a similar rate, but mortgages in this country are issued at 0.5%.

The lowest rate among the above countries is in Sweden - -1.25%.

So are negative interest rates a good thing?

More likely no than yes. Negative rates themselves are a consequence of deflation caused by a prolonged recession in the economy. And deflation leads to a fall in aggregate consumer demand, a reduction in the amount of money in the economy and a decrease in the growth of its real value, which reduces the income of producers, forcing them to reduce production and fire workers. As a result, the state budget receives less taxes.

In turn, low interest rates are not attractive to investors, who in such conditions most often transfer their capital to other countries. Thus, even for banks it is easier and more profitable to invest in foreign assets with higher returns than to lend to the population at a low interest rate within their own country.

In addition, along with cheaper consumer goods, wages also become cheaper, and the purchasing power of the national currency in foreign countries decreases. At the same time, residents of countries experiencing deflation cannot compensate for the loss of value of their savings, since deposits in banks also have a negative rate.

All these processes unwind a deflationary spiral, which can provoke high levels of unemployment, a reduction in investment and output.

Negative real rate (negative real interest rate) – this is the real rate in a situation where the rate of inflation growth exceeds the level of the nominal rate. The most significant negative effect of a negative real rate is that low-risk assets, such as certificates of deposit (referred to as CDs) and standard bank accounts, do not generate returns for the investor at all.

What does a negative real rate lead to?

A negative real rate is a consequence of the economic downturn. Despite the low level of return on savings, financial institutions are not eager to increase interest rates on loan products, because the additional financial burden on borrowers can lead to an economic crisis, the final elimination of which will take several years in the future.

There are several typical situations that can arise when the real rate is negative. When they begin to earn a minimum income, people tend to save and reduce consumption. On the other hand, they can earn income in the future due to the fact that current loan rates are quite low. Therefore, an experienced person is able to use this circumstance to his advantage.

The impact of a negative real rate on the national currency

A negative real rate negatively affects the national currency, which begins to fall relative to the currencies of other countries. Therefore, the demand for precious metals (primarily gold) and raw materials that can retain their value for a long time is increasing - people use these assets as “ financial haven" Some investors prefer to protect themselves from high inflation by purchasing securities of large foreign companies.

Today I bring to your attention a small educational program about what it is negative discount rate. I already discussed the concept itself once (via the link), talking about what its increase and decrease leads to. Let me briefly remind you that this is one of the key financial levers at the disposal of the Central Bank of the state, with the help of which it regulates the level of inflation in the country, the exchange rate of the national currency and, globally, the pace of economic development.

The discount rate largely determines the cost of attracting and selling resources on the interbank market, as well as rates on loans and deposits for enterprises and households. The higher the discount rate, the more expensive the resources, which slows down economic growth, but also curbs inflation and devaluation. And, conversely, the lower it is, the stronger the economic growth, but at the same time the stronger the inflation and devaluation.

The size of the discount rate can serve as one of the indicators of the state’s economy: the lower it is, the higher the level of economic development of the country. For example, in the most developed countries the current discount rate ranges from 0 to 1%.

However, there is another side to the coin. Practice shows that even with excessively low interest rates, economic growth rates can slow down under the influence of other factors, which is what we are now seeing around the world. Likewise, inflation is falling, in many countries with a high level of development it is close to zero or even often negative (deflation). And this is by no means a good indicator, as many may think.

In such a situation, it is very difficult to stimulate the economic development of the country. Judge for yourself: loan rates are already minimal, loans are available to everyone, but this is not enough for the desired economic growth. And in such a situation, the country’s Central Bank may resort to such an extreme measure as establishing a negative discount rate. What does this mean?

A negative discount rate, influencing pricing on the state capital market, leads to the formation of, if not negative, then at least zero rates in the country's banking institutions. This suggests that when receiving a loan, the borrower not only does not pay interest, but can also receive a bonus from the bank for lending, and the depositor, on the contrary, pays extra to the bank for keeping his money on deposit there.

For us this still seems like a fantasy, but for some countries it has already become a reality. Negative discount rates were introduced by banks in several European countries, and most recently by the Bank of Japan.

Negative interest rates currently have the highest values ​​in Switzerland and Denmark – there they amount to -0.75%. In Sweden the discount rate is -0.5%, and in Japan - -0.1%. So far there are only 4 countries with negative interest rates, but it is possible that other states may be included in their number. There has already been a lot of talk about establishing a negative discount rate, for example, in Israel; the Czech discount rate (0.05%) is closest to zero on the positive side.

Why do central banks introduce negative interest rates? To stimulate business development and economic growth. If, in the opinion of the central bank, there is not enough business lending in the country even at positive rates close to zero, then at zero and, especially, negative rates, more loans will be taken. On the other hand, people who keep savings on deposits, when they have to pay extra to the bank for this, will think about withdrawing them and investing them in other instruments that contribute to economic development, for example, in the same securities of enterprises.

The introduction of a negative discount rate can lead to both the strengthening and weakening of the country’s national currency. For example, when the Bank of Japan recently resorted to such a measure, the Japanese yen strengthened against all world currencies by about 10% in a couple of weeks, and this was even before the new conditions came into effect. In Switzerland, on the contrary, the establishment of a negative discount rate helped to slightly and briefly reduce the exchange rate of the Swiss franc, for which the country often spent enormous financial resources (to maintain and maintain the exchange rate below the administratively established value, as a result, this measure was abandoned).

What negative consequences could the introduction of a negative discount rate lead to? Well, for example, to failures of banking computer systems, which calculate many indicators based on its value - a similar problem immediately arose in Denmark.

In many countries, the yield on government bonds held by both domestic and foreign investors is tied to the discount rate. If the discount rate becomes negative, it turns out that now they will not only not receive income on the purchased securities, but will also have to pay extra for owning them.

Owners of savings in various pension, insurance, and investment funds, the profitability of which is also calculated based on the level of the discount rate, may also experience losses.

As a rule, when introducing a negative discount rate, the Central Bank believes that this is a temporary last resort: when the planned inflation and economic growth indicators are achieved, it can be raised back and made positive. However, it is difficult to plan how things will actually turn out; it is likely that negative interest rates will be in effect in a number of countries for at least several years.

That's all. Now you know what a negative discount rate is and what it is used for. Increase your level of financial literacy on the website. See you again!

Negative rates became a reality in the modern financial world a few years ago. Dreaming of financial stability, many Russians do not even imagine what amazing (in our opinion today) forms it takes on in prosperous countries. There, in an almost inflation-free economy, depositors sometimes do not receive income from their bank investments, but on the contrary, sometimes they themselves pay the bank for the service of storing money in an account. Will the new reality reach Russia, and under what conditions will this become possible?

Bold experiments

Actually, human history has already known times when, when accepting capital for storage, its “caretaker” took a fee from the owner for his deposit services. This is how banking began many centuries ago, when gold was the only reserve currency. Already in our time, the German economist of the early 20th century Silvio Gesell was the first to theorize the idea of ​​negative deposit interest at the state level. His free money model assumed a small regular payment by citizens to the state for the issue of money (as a fee for a government service). However, the loan interest was completely reset to zero. Money, thus, ceased to serve as a store of value, accelerating its turnover in the economy.

And although a completely successful practical experiment “according to Gesell” took place on the territory of several Austrian cities in the 30-40s of the last century, yet modern economists 10 years ago considered it unthinkable that negative rates would become a reality of the 21st century. The idea of ​​financial demurrage still makes many people twirl their fingers at their temples. In the minds of most of us, at best, the rate is at least zero. However, the national bank of Sweden, the Riksbank, in 2009 became the first modern central bank that began to charge its ward credit institutions a fee for money accepted from them into correspondent accounts, i.e. thus introduced a negative deposit rate at minus 0.25% per annum. Which, however, did not yet mean an unambiguous and immediate extrapolation of negative returns on bank deposits for citizens and corporations.

Countries and rates

Since then, the Swedish model has been gradually adopted by the Central Banks of other economically developed countries, which, after observing a little of the pioneer, in 2012-2016 began to introduce extraordinary methods at home. Negative rates have already been tried (following Sweden) by Switzerland, Japan, and Denmark. However, their key rates do not stand still, they change (in Russian opinion, almost imperceptibly - by hundredths or tenths of a percent), sometimes rising to a positive level just above zero.

If we talk about the experience of the pan-European ECB, then two years ago it lowered its deposit rate for the first time from 0% to minus 0.1%, while simultaneously maintaining the base rate within the range of 0.15-0.25%. Positive bank rates in Canada, the USA, Great Britain, Norway are still hovering around zero... Their regulators are only looking closely at the experience of others. At the same time, there are already American and European government bonds with negative yields (it turns out that investors pay extra to governments for storing their capital). Looking back a little, we will see that the Japanese regulator, long before the Swedish innovations, kept its deposit interest at the lower level of 0.1% for several years in a row in 2001-2006, without even thinking that it would ever enter the negative zone.

Why does the government need negative rates?

What is the reason for such an amazing interest rate policy? Do Western banks really have so much money that they decided to turn depositors against themselves and bribe borrowers with a small commission, instead of earning money on loan interest? After all, the policy of negative interest rates of the Central Bank is not immediately, but gradually transferred to relations between commercial banks and their clients.

To understand, let us remember the conditions under which the Swedish Riksbank began its bold experiment. 2009 is the year of the ongoing global financial crisis, during which investors lost confidence and stopped investing in the real economy, hiding their capital in quiet, safe bank deposits. Almost zero inflation generally developed into deflation, which by that time had reached, in particular, in Sweden a level of minus 0.9%. In response, the economy stopped growing: in addition to GDP, wages, the number of jobs, and demand for goods and services stopped growing. Demand for loans also fell, as potential borrowers were afraid that the crisis would prevent them from paying off their debts in the future. Banks accumulated unclaimed liquidity, which almost stopped working and making a profit.

Measures were required to stimulate economic growth. To restart the economy, theorists have calculated an effective rate of target inflation close to 2% per annum (as strange as this may sound to a Russian who is shocked by the mere fact that inflation in some countries is deliberately raised from negative values). At the same time, the national currency must be protected from sharp exchange rate fluctuations, which is not easy. Economists believe that the introduction of negative interest rates will encourage citizens and corporations to take out loans, forgetting fears of loss of solvency. A negative deposit rate may force people to withdraw capital from risk-free bank deposits in order to invest in real business, for example, in real estate construction. Thus, the long-awaited growth of added value should begin, which will also bring profit to investors.

What is good for the borrower?– then it’s bad for the investor

It is clear that not every Western bank has yet boldly transferred the policy of negative rates to relationships with its ordinary clients, as the state regulator does with supervised credit institutions. Not every private bank is willing to pay borrowers or charge its depositors. But let's see how this happens in life using only a few known examples.

Almost four years ago, the Danish Central Bank introduced a negative base rate (analogous to our key rate), which today has changed to minus 0.65% (with inflation in 2014-2015 plus 0.6%). One ordinary Danish mortgage holder, who took out a home loan more than 10 years ago, was very surprised when at the end of last year the bank paid him a small bonus, instead of once again charging him interest on the loan. At the same time, the floating annual rate of his bank’s mortgage program was approximately +0.56% per annum at that moment. However, according to the mortgage agreement, the client must regularly pay additional commission fees to the bank.

The name of the European bank that was the first to charge its depositors interest for storing money has not been established. Journalists suggest that it was one of the Swiss credit organizations. They say that a negative deposit rate is charged there for amounts over 10 million Swiss francs. According to other sources, the minimum threshold is only 100 thousand CHF, but already in several banks. The introduction of negative interest rates for deposit transactions is currently being discussed in many European countries, incl. in Spain, far from total prosperity.

Side effects

It seems that paid deposits are still a headache for rich VIP clients. It is their large sums that are difficult to completely transfer into cache, hiding everything, for example, in a safe. Cashing out costs may be more expensive than negative interest. The average population may not be affected by this rate. Citizens of economically developed countries have long been accustomed to almost zero rates. Their deposits often increase by only tenths of a percent, approximately equal to our demand deposit rates.

It is also not yet clear how long the era of negative rates will last, how effective it is and whether it is applicable to different economies. After all, along the way, problems have worsened that are not always resolved quickly and successfully. For example, almost zero interest rates could lead to another real estate credit bubble. However, there is reason to believe that Western central banks will find a reasonable solution and will be able to turn monetary policy in the right direction in a timely manner.

Are negative rates possible in Russia?

Russian investors may not be afraid of “paid” deposits for a long time. The high level of inflation, and numerous other risks of the domestic economy, do not yet provide grounds for introducing nominally negative rates. In addition, one of the conditions for the emergence of “good” deflation is a reduction in production costs (for example, due to the introduction of IT technologies), and not a fall in the effective demand of the population.

But de facto, the problems of our investors, although they lie on a slightly different plane, still make us fear the decrease in the value of savings over time. For example, there is a known imbalance between the deposit rate and the price growth index, when inflation eats up the value of invested money, sometimes more than the deposit interest covers this depreciation. And foreign currency deposits (whose low rates are already approaching European ones) do not always save from inflation and devaluation. Especially considering the sharp fluctuations in the ruble exchange rate up and down and the authorities’ intention to prevent the ruble from strengthening so as not to increase the Russian budget deficit, which is heavily dependent on hydrocarbon exports.

Experts suggest that the downward trend in deposit interest rates in Russian banks will continue this year. However, not to negative values, at least nominally. The Chairman of the Bank of Russia fears that inflation in the Russian Federation (calculated by Rosstat) will remain stuck at 6-7% per annum for a long time. The inflation target for the Central Bank is an average figure of 4% by the end of 2017. And some independent economists predict the start of growth in the domestic economy no earlier than 2020, and then only under certain conditions.

Oksana Lukyanets, expert at Vkladvbanke.ru