Comments | the_recession: Sweden sets negative interest rate

roadriverrail in the_recession

Sweden sets negative interest rate

Jul 02, 2009 16:09

http://www.riksbank.com/templates/Page.aspx?id=32047

"The minutes from the Executive Board’s monetary policy discussion will be published on 16 July. The decision on the repo rate will apply with effect from Wednesday, 8 July. The deposit rate is at the same time ( Read more... )

keynesianism, zirp, interest rates, sweden

Comments 9

sophiaserpentia July 3 2009, 03:01:39 UTC

I've... never seen a negative interest rate. Not sure how that works. You pay money to keep your cash in the bank? Are they *trying* to encourage a run on the banks? This practically incentive-izes mattress saving.

ETA. If it's just the prime lending rate, maybe they mean their central bank will pay banks to borrow from them. It may not translate below zero to regular savings or mortgage rates.

interactiveleaf July 3 2009, 04:19:47 UTC

They pretty specifically said "the deposit rate," so it sounds as if they're actually going to make you pay for the privilege of keeping money in the bank, and on the surface, that seems crazy.

On the other hand, I look at how much interest I receive on my Wells Fargo checking account, and it's a joke. I realized after reading this that I'd happily pay that amount of money just to avoid having to pay all my bills in cash, or to avoid having to shift my automatic debits to another account.

Maybe they're counting on that? I don't know. I've run out of ideas.

open_truth July 3 2009, 03:45:29 UTC

Maybe they are having a deflation or something? I think Japan had something similar going on some time ago, if I'm not mistaken.

roadriverrail July 3 2009, 05:41:07 UTC

They never went truly negative, though. On one hand, there's a certain bent logic to negative interest during deflation, since retiring money means contracting the base money supply, holding the currency value constant. But since people aren't forced to hold everything in a bank deposit, this doesn't seem to make a lot of sense. Money held in cash or convertible assets will continue to raise in value compared to money in the bank.

open_truth July 3 2009, 05:54:44 UTC

That's true, but sometimes you just have to have money in the bank. You can't pay your credit cards by cash or any other bills. You need to show that you have cash in the bank if you are applying for mortgage. So, you are kind of forced.

cieldumort July 3 2009, 17:31:07 UTC

Most of the world is now in or sliding into outright deflation (the entire EU, for example, is now in outright deflation - and here in the US we have been experiencing wage deflation for the first time since the 1930s).. but none of these nations have a negative interest rate. I didn't even think that possible. I mean... how do you put your rate below zero? I can't get my head around this.

island42 July 3 2009, 05:14:31 UTC

Global competitive quantitative easing. All countries wish for their currency to depreciate faster compared to other currencies. The pace of which this is happening has picked up if countries are now resorting to negative interest rates.

roadriverrail July 3 2009, 05:43:42 UTC

I will be the first to admit I don't "get" quantitative easing, so forgive me if this sounds dumb. But...isn't quantitative easing a process of giving banks money rather than taking money away? Also, how do you lower the value of money by reducing the base supply?

This seems to be designed to coax more lending and lower deposits, but if there's nobody worth lending to, then why not just buy convertible assets?

cieldumort July 5 2009, 19:31:13 UTC

NC has a great write-up about this:
http://www.nakedcapitalism.com/2009/07/sweden-negative-interest-rates-and.html