The largest Swiss bank has introduced negative rates on deposits. Negative interest rates

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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Negative interest rates. Reasons and expectations

Relevance of the topic. Negative interest rates are of interest to both economists and the public. However, in this case there are costs: money is subject to theft and physical destruction. Therefore, holding currency is very expensive: it needs to be protected in large quantities, it is difficult to use for large and remote transactions. Interest in negative interest rates has grown significantly recently. They operate in Switzerland, Sweden and Japan, and over the past 10 years they have been introduced by the European Central Bank, the National Bank of Denmark, the Bank of Italy and the Netherlands Bank. Given the dynamics of interest rates in many large economies of the world, there is a high probability that many other Central Banks will introduce negative interest rates.

The purpose of the work is to study negative interest rates. To achieve this goal, a number of tasks are solved:

1) study the essence of negative interest rates;

2) explore whether negative interest rates always produce a positive result for the country's economy.

The essence of the negative interest rate policy (NIPR) is the introduction of a negative interest rate on bank deposits. This is a radical anti-crisis measure that the governments of a number of countries are using or planning to use in order to artificially inject additional money into the economy. In most economies, the central bank prints money and lends it to selected banks at a certain interest rate, after which the money is distributed further within the economy. This percentage has a direct impact on inflation. If a large bank returned 10% more money to the central bank than it took a year ago, this means that the difference of 10% has been taken out of the economy, there is less money, money has become more expensive. In this way, banks target inflation by setting interest rates above the inflation rate. However, if inflation in a country is 1-3%, then there is no need to fight it. In this case, the central bank sets stable economic growth as a priority. For these purposes, interest rates are reduced, making loans cheap, thus stimulating the economy to increase production and GDP growth.

But if interest rates are in the near-zero zone (as, for example, in the EU or the USA), then, as the examples of many European countries show, negative interest rates should be introduced. Under POPS, the central bank lends money to banks at a “negative interest rate,” meaning that after a year, those banks will return less money to the central bank than they took out a year ago.

Thus, additional amounts of money are injected into the state’s economy, money rapidly becomes cheaper, inflation rises, and prices rise. With negative deposit rates, it makes no sense for depositors to keep money in the bank.

Thus, the Central Bank encourages people to spend more, supporting the national economy. Loan rates are also negative, but if you take into account all the bank's commissions, you still get a small percentage. The loan still remains paid, but there is no longer a risk fee in the usual sense; in fact, borrowers pay the bank for its work in preparing documents.

The main reason why sane investors accept negative returns on their capital is because they believe that deflationary forces are accelerating forward and that interest rates will fall further, but this cannot be predicted with complete certainty. However, the implications of negative interest rates are significant. In attempting to overcome the build-up of deflationary pressures, many governments have no choice but to rely heavily on Central Bank policies and strategies rather than other methods of changing financial market behavior. There are three macroeconomic tools that governments can resort to in an attempt to stimulate demand growth:

Fiscal policy;

Monetary Policy;

Monetary policy.

Because the world needs economic growth, bankers and treasury officials around the world are trying to manage investor preferences by focusing their attention on risky assets rather than "safe" assets. With short-term interest rates at 0% (or lower), banks are penalized for holding large deposits with central banks. Regulators impose different fees on banks on these accounts. Consequently, some banks face negative interest rates while holding funds in reserves at the Central Bank. Central banks apply negative interest rates on deposits as a monetary policy tool to prevent banks from depositing excess funds with central banks.

For example, the European Central Bank (ECB) set deposit rates at -0.2% from September 2014, as a form of punishment for banks that hold excess cash at the Central Bank. This is an extreme measure of monetary policy that involves changing interest rates, just as when central banks cut interest rates to stimulate economic activity. EU countries are currently struggling with negative inflation, i.e. deflation, and the ECB decided to cut interest rates on deposits below zero to release banks' excess cash into the economy. In February 2015, Germany sold five-year government bonds in the amount of 3.281 billion euros with an average yield of 0.08%, i.e. investors were willing to pay the German government to lend its debt. In the eurozone, there were €1.5 trillion ($1.7 trillion) in negative-yielding debt deals in a wide range of countries, including Austria, Denmark, Finland, Germany, the Netherlands and Switzerland.

The rationale for investing in bonds that involve a guaranteed loss is as follows:

· Expectation of negative returns. In line with the current deflationary economic environment in Europe, investors who purchase bonds with negative yields can expect yields to fall further, allowing them to profit from their investment;

· Possibility of positive income. In countries where deflation is expected, investors may benefit by ultimately making a profit by investing in bonds with negative yields;

· Moving funds from more negative to less negative investments. Since some banks provide negative yields higher than government bond yields, investors prefer to withdraw cash from banks and invest it in government bonds, which will be worth less;

· Asset allocation policy. Some institutional investors are required to hold bonds in their portfolio, especially investors who specialize in fixed income securities because... they may continue to invest in negative yield bonds in order to comply with this allocation policy;

· Expectations of currency appreciation. Foreign investors who expect currency appreciation relative to negative-yielding bonds denominated in domestic currency will agree to invest in order to receive the expected positive return in domestic currency;

· Security fee. Foreign investors from emerging markets, struggling with economic downturns accompanied by defaults and currency devaluations, are accepting the purchase of negative-yielding safe-haven bonds from European economic giants such as Germany, Switzerland, etc.

The problem is that near-zero rates make it difficult to accumulate the assets that should provide retirement income. This could cause people to act opposite to what the ECB expects - saving more rather than spending.

Another important factor is the amount of cash: if there is a lot of cash in the economy, negative rates from central banks and their further reduction have limited impact. In Sweden they are effective because it is already an almost cashless economy: cash in circulation there is less than 2% of GDP. In Switzerland, this figure exceeds 10% of GDP, and it is relatively cheap to store cash, since there are large 1000 franc notes.

There is no doubt that negative rates can help overcome a recession by encouraging people to spend more, but they can also create inflation, which is clearly better than deflation. But if inflation in Japan is rather desirable, then inflation of more than 4-5% in the European Union and Britain can lead to very serious consequences comparable to the Great Depression in the United States. In this case, it is not so much the inflation itself that is dangerous, but the shock from it. Also, with high inflation, there is, although a small, probability that the members of the European Union will abandon the euro, since it is the single currency that can cause a whole chain of financial crises in the EU countries.

So, the policy of negative interest rates has both advantages and disadvantages. On the one hand, it encourages people to spend more, thereby reviving aggregate demand and production. On the other hand, such a policy carries enormous risks: the population simply begins to invest in assets with great risk, regardless of the fact that the conditional state wants to increase aggregate demand.

People will save, despite the fact that such a reliable instrument as bank deposits is actually taken away from them.

The only question is where the money will go - into gold, real estate, securities or cash, and what risks such a movement of capital will generate.

Currently, six European and Japanese central banks have negative rates.

Moreover, unforeseen side effects are becoming more and more apparent. For example, the rates of both the yen and the euro have increased, although the central banks of these regions are increasingly easing monetary policy, and the US Federal Reserve is gradually tightening it.

Thus, in March 2015, when the ECB began implementing a bond purchase program worth 1.1 trillion euros, the euro exchange rate was $1.05, and now it is $1.13. And this despite the fact that in March 2016 the volume of purchases was increased to 1.5 trillion euros, and all three main ECB rates are already in negative territory (the first reduction below zero occurred in 2014).

In addition, central banks themselves are suffering from extremely low and negative interest rates, according to a survey of foreign exchange reserve managers of 77 central banks conducted by the Central Banking Publication and HSBC (as of August 2015, they had $6 trillion under management).

Of these, 80% said negative rates had an impact on their portfolio management strategy, and 60% said negative rates had an impact on their central bank. Most change their strategy, including buying riskier instruments.

After all, a number of government and even highly rated corporate bonds are now trading with negative yields. Central banks must preserve capital, so investing in securities on which they have to lose money is counterintuitive. To achieve profitability, they have to act more aggressively and, in some cases, take on more risks.

The Swiss National Bank, in order to contain the strengthening of the franc, made the deposit rate for commercial banks negative. There are no deposits left in the Swiss bank without negative rates.

Banks in Sweden, Denmark and Switzerland have struggled to offset negative rates by increasing the cost of loans - particularly mortgages - and by charging higher fees. As a result, borrowing costs went up rather than down.

The essence of the problem is this: markets are no longer sure what the introduction of low rates in a number of countries will lead to. Peter Prat, chief economist at the European Central Bank, said last week: “As other central banks have demonstrated, we have not yet reached the physical lower bound.” As long as this uncertainty remains, it is difficult for banks to understand whether new loans are economically feasible, and it is difficult for investors to properly value bank assets. Following the ECB's deposit rate cut by another 10-20 basis points, the impact on bank profits could become exponentially negative.

Denmark and Switzerland sought to soften the blow with tiered schemes that would tax only excess deposits and deter foreign investors from moving money out of the market. The ECB is trying an alternative scheme: a new targeted long-term refinancing operation through which it would pay banks to make loans. But this does not fully compensate for the resistance of negative rates. My estimate is that only 5 to 15 percent of the $1.5 trillion TLTRO increase will be taken out. This estimate is based on a survey of the eurozone's largest banks at the Morgan Stanley's Financials conference last week. There are practically no banks in northern Europe who would claim these compensations. In other words, nearly half of the TLTRO could end up as legacy financing operations—rate subsidies without new loans.

For banks, the indirect effects of negative rates may be more important than the direct effect. There is a risk that market liquidity will decline as low rates mean financial intermediaries will hoard high-yielding assets. There's also the question of how money market funds, which help many corporations manage their finances, will hold up in a negative rate environment. In Japan, all 11 companies that manage money market funds have stopped accepting new investments.

Some managers are buying or "seriously considering" buying asset-backed bonds and exiting currencies with negative rates, the survey found. One said central banks are buying bonds with longer maturities that have higher yields, even if those bonds are less liquid.

Reserve managers are also suffering collateral damage from negative rates.

They face the same problems as everyone else. But they understand very well that there are much more important things than the profitability of their reserves.

In January 2016, the Bank of Japan surprised markets by setting the interest rate on bank deposits at -0.1% from mid-February. So he wanted to stimulate economic growth, lending and inflation. But the experiment led to unexpected results. Activity in the money markets has decreased, while at the same time demand for government bonds has increased, although the yield of many of them is negative.

The yen exchange rate against the dollar did not fall, but rose to its highest level in a year and a half.

Bank of Japan Governor Haruhiko Kuroda said he was ready to ease policy further if necessary.

But financial market participants are not so confident in the effectiveness of negative rates.

The level of interest rates has little effect on the demand for loans, and the market loses its purpose.

Lower interest rates usually lead to a weaker currency, which benefits exporters.

This is a key goal of the so-called Abenomics, a package of measures adopted by Prime Minister Shinzo Abe.

But the yen has strengthened this year amid uncertainty in global markets and a weakening dollar.

In addition, foreign investors unexpectedly entered the Japanese bond market - they were attracted by the possibility of super-cheap financing in yen.

As a result, the yen rose as traders believe that the Bank of Japan is now unable to significantly ease policy. There is no guarantee that lower rates will encourage corporate investment and households to choose investing over saving.

Kuroda predicted that banks would increase lending, but they began to look for more profitable investments abroad.

According to the Ministry of Finance, in March, Japanese investors purchased foreign securities worth 5.47 trillion yen ($50 billion) - 11% more than in February.

Because of this, Japanese investors' demand for dollars increased, and they began to borrow them from foreign financial institutions. They, in turn, increased commissions (for example, for three-month contracts - almost doubled) and began to invest the received yen in Japanese government bonds, traders say.

Although their returns are negative, foreign investors still benefit due to high fees. According to the Japan Securities Dealers Association, net purchases of Japanese government bonds by foreign investors increased in February compared to January by 16% to 18.3 trillion yen ($167.4 billion). And their net purchases of medium-term bonds in February were twice the 12-month average.

Even strong demand for dollars from some Japanese investors could not prevent the yen from rising.

There is no reason for the yen to strengthen amid negative rates. But due to concerns about China and the global economy, the yen has gained safe-haven status. And at the same time, doubts arise about the effectiveness of Abenomics.

Directly negative rates can be seen as a technical point in the policy of central banks to stimulate economic growth.

However, another explanation can be given for their appearance if we rise to a higher level of abstraction from numbers and quantitative dependencies.

If we look at the economy as a living organism that is trying to restore its vitality, then negative rates and negative bond yields can be defined as ways in which the economy is trying to solve the problem of reducing liquidity, although in form such actions of central banks, on the contrary, look like an attempt to increase liquidity in the economy.

Conclusion. The main advantages of zero interest rates include lowering the cost of capital and increasing the role of refinancing, while the disadvantages are currency depreciation and encouragement of excessive borrowing. Thus, the negative aspects of zero (negative) interest rates prevail over the positive ones, so their use has an extremely negative impact on the economy and leads to crises. Negative interest rates are a high-risk experiment.

Negative rates have helped weaken the Swedish and Danish crowns, supporting those countries' exporters, but the same has not happened in Japan: the yen continues to attract capital from abroad because investors continue to view it as a safe haven. Switzerland,

Sweden and Denmark use negative interest rates primarily to weaken the value of their national currencies, so as not to lose their competitive position on the world stage as a result of rising import prices. The European Central Bank (ECB) and the Bank of Japan use negative interest rates mainly to stimulate economic growth by fighting deflation.

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

Investors provided Germany with about $4 billion of their funds. They provided it this week, knowing that not all the money would be returned - the same negative interest rates still rule the roost. And not only government bonds, but also the securities of individual corporations, the Swiss Nestlé, for example, became unprofitable for investors.

On the other side of zero

Of course, consumer and mortgage loans with negative rates are still a rare phenomenon, 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 fortunate - the negative rate turned out to be unprofitable for them, and now they have to pay the banks for using their deposits.

Negative interest rates in politics

Switzerland unpegged its franc from the euro, which sent markets into shock, while simultaneously cutting its key rate to negative. The Central Bank of Denmark reduced the rate as many as 4 times and in just a month. Now in this country the main rate is -0.75%. Sweden followed suit. And what’s going on in European securities markets is a topic worthy of economic research.

Back to consumers

Of course, all these incidents have not yet become widespread, and therefore depositors can still transfer their money to other banks. And bonds of emerging markets can still be an excellent alternative to European bonds.

In Russia, a fall in interest rates on loans is not yet expected. Therefore, businessmen also have to include the costs of servicing bank loans as other expenses. However, despite the rise in prices, business loans have not become more accessible - banks are still very demanding of entrepreneurs. But still

The head of the world's largest investment firm, BlackRock, called for attention to the dangers of cutting interest rates, which often turn negative, a policy that some central banks have resorted to to support the economic situation. Larry Fink, co-owner and chief executive officer of BlackRock, noted in his annual address to shareholders that low interest rates are also hurting savers, which in turn could mean the policy is having the opposite effect on the economy than expected.

He sees negative interest rates as "particularly worrying" and potentially counterproductive amid social and political risks. This has created the most volatile situation in the global economy in about the last 10 years, MarketWatch reports. “Their [central bankers’] actions are putting severe pressure on global savings and creating incentives for them to seek higher yields, pushing investors toward less liquid assets and higher levels of risk, with potentially dangerous financial and economic consequences,” Fink wrote to shareholders.

Savers are forced to put more money into investments to meet their retirement goals, which means they will spend less on their own consumer spending. These and a number of other factors, including geopolitical instability, are creating “a high degree of uncertainty in the global economy that is not has been observed since pre-crisis times." “Monetary policy is designed to support economic growth, but now, in fact, it causes risks of a reduction in consumer spending,” the German financier concluded.

The IMF is in favor, but...

Meanwhile, the International Monetary Fund also shared its own thoughts on negative interest rates. Its experts said that "overall, they help provide additional monetary stimulus and financial conditions that support demand and price stability." The IMF believes these rates could encourage the private sector to spend more, although it acknowledges that savers could be hit.

The IMF does acknowledge that there is a "limit to how far and how long" negative interest rates can go. Such a policy could cause “unpredictable consequences”: for example, banks will begin to lend to risky borrowers in an attempt to compensate for the decline in the number of depositors. Negative interest rates can also trigger boom-bust cycles in asset prices, the IMF notes.

Extraordinary measure

The logic behind introducing negative rates is very simple, says Robert Novak, senior analyst at MFX Broker. In conditions where the rates at which commercial banks can place money on deposit with the Central Bank are positive, and the economic prospects are uncertain, banks often prefer not to lend to households and businesses, but to earn money without risk by simply placing money with the Central Bank.

When rates become negative, it becomes unprofitable to keep money in the Central Bank: in order to earn money, banks are forced to engage in active lending - it is better to lend money even at a minimal interest rate and receive at least some income than to obviously lose when placing it on a deposit with a negative rate. Thus, by introducing negative rates, regulators are trying to force banks to lend more actively, and to issue loans at a minimum interest rate. In the future, this policy of “cheap loans” should have a stimulating effect on the economy.

Yes, says Robert Novak, Lawrence Fink's comments about the possible negative consequences of negative interest rates are correct. But these negative consequences are unlikely to materialize if the period of negative rates is short-lived. Still, the world's central banks consider this measure as extraordinary and do not intend to delay its application. So this policy is unlikely to lead to any serious problems.

The new chapter of the world economy

Zero or negative rates are the same as the new head of the world economy, says Alor Broker analyst Alexey Antonov. After the 2008 crisis, the United States and the eurozone did this in order to stimulate economic recovery, but they did not think about the consequences and the proper effectiveness. And, as we have seen from history, it was in vain - because the expected result did not happen. While the United States is gradually recovering, growth in the eurozone is almost zero.

Over long periods, the model is disastrous for developed economies, and it seems, the expert says, that the American regulator understands this after all, since it is already thinking about raising the rate. Now they are faced with a serious question - to raise the rate, despite the global risks from China and cheap oil, or to balance at the current zero rates and wait for economic growth, and only then raise it.

Objectively, Antonov believes, now the Fed has no effective measures left to maintain the economic balance, and, perhaps, in the event of a crisis, the story of launching the printing press may repeat itself. That is, in other words, it is less stressful for the economy not to raise the rate, but this will only have an effect for some time, until the next time the machine is connected to the business - this will not solve the global problem. An increase in it, which after a while would somewhat sober up the economy, would solve the problem. But here again the question, says the expert, is whose interests does the government adhere to? Objectively, he now needs public peace and business support, so, probably, the saga with retention will continue.

We're not going there

As for the Russian Federation, then, of course, the introduction of negative rates by the Bank of Russia is out of the question, Robert Novak is sure. This measure is introduced by central banks only when there is a real threat of deflation that cannot be prevented by any other measures. In Russia, on the contrary, there is inflation that is almost twice the target level of 4%. In such cases, in world practice, not negative, but, on the contrary, increased rates are used. Which, in fact, is what the Bank of Russia did.

Nevertheless, according to Robert Novak, Russia can derive some benefit from the negative interest rates involved in Europe and Japan. Rates on Russian bonds (both government and corporate) look very attractive, and, as Bloomberg reported yesterday, Western hedge funds are showing increasing interest in ruble assets. So, all other things being equal, the regime of negative rates in the leading economies of the world will contribute to the influx of capital into the Russian Federation.

With regard to Russian realities, Alexey Antonov agrees, everything is somewhat different here. Our economy is heavily dependent on the raw materials sector, so any fluctuations in the oil market seriously affect the internal policy of the Central Bank. In a situation where oil sank significantly and the currency soared to unprecedented heights, the Central Bank was forced to sharply increase the rate, otherwise the economy would have collapsed. Currently, the Central Bank adheres to the policy of fighting inflation, which is why the rate has remained at the same level.

However, how long will he stick to it, the expert asks, is also a difficult question, because a high rate one way or another affects the development of such an important sector of the economy as small and medium-sized businesses. A slight reduction in it at the next meeting of the Central Bank would have a positive effect on improving the economy, but, believes Alexey Antonov, it could hit the pockets of Russians.

It should be noted, however, that maintaining the rate of the Central Bank of the Russian Federation at the current level, despite the fact that economies everywhere are stimulated to grow by low rates, even minus, is also a dangerous practice. It is obvious that there is no other recipe for growth other than cheap money in the world economy today, and neither does our Central Bank. That’s why they hardly talk about growth there, preferring other goals and terms. However, despite the interest in Russia on the part of Western speculators, which does not bring us much benefit, although it feeds the money market (which then turns into a withdrawal of capital), these goals are hardly the optimal strategy. We have been told for many years that low inflation will lead to economic growth and real investment, but it is obvious that its decline does not correlate with economic growth in any way, rather the opposite.

Maybe we should stop being afraid of taking money out of citizens’ pockets - which is how high inflation is usually reproached - and just put it there, making it more accessible? But this is a completely different logic. As for the phenomenon of negative interest rates, of course, it requires observation and study; there is not much material on this new practice yet.

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 effect 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.