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Negative Interest Rate Policy
#1
What is a 'Negative Interest Rate Policy (NIRP)'

A negative interest rate policy (NIRP) is an unconventional monetary policy tool whereby nominal target interest rates are set with a negative value, below the theoretical lower bound of zero percent.

BREAKING DOWN 'Negative Interest Rate Policy (NIRP)'

During deflationary periods, people and businesses hoard money instead of spending and investing. The result is a collapse in aggregate demand which leads to prices falling even farther, a slowdown or halt in real production and output, and an increase in unemployment. A loose or expansionary monetary policy is usually employed to deal with such economic stagnation. However, if deflationary forces are strong enough, simply cutting the central bank's interest rate to zero may not be sufficient to stimulate borrowing and lending. (See also: How Interest Rates Can Go Negative.)

A negative interest rate means the central bank and perhaps private banks will charge negative interest: instead of receiving money on deposits, depositors must pay regularly to keep their money with the bank. This is intended to incentivize banks to lend money more freely and businesses and individuals to invest, lend, and spend money rather than pay a fee to keep it safe.

Examples

An example of a negative interest rate policy would be to set the key rate at – 0.2%, such that bank depositors would have to pay two-tenths of a percent on their deposits instead of receiving any sort of positive interest.
  • The Swiss government ran a de facto negative interest rate regime in the early 1970s to counter its currency appreciation due to investors fleeing inflation in other parts of the world.
  • In 2009 and 2010 Sweden and in 2012 Denmark used negative interest rates to stem hot money flows into their economies.
  • In 2014 the European Central Bank (ECB) instituted a negative interest rate that only applied to bank deposits intended to prevent the Eurozone from falling into a deflationary spiral.
  • In 2016, Bank of Japan will apply a rate of negative 0.1 percent to excess reserves that financial institutional place at the bank.
Theoretically, targeting interest rates below zero will reduce the costs to borrow for companies and households, driving demand for loans and incentivizing investment and consumer spending. Retail banks may choose to internalize the costs associated with negative interest rates by paying them, which will negatively impact profits, rather than passing the costs to small depositors for fear that otherwise they will move their deposits into cash.

Will it work in Singapore?

No, we are just too smart to exploit any system. Instead of stimulating the economy, base on our selfish mindset we will close our bank account and keep the money under our bed - as it always have been and always will be. We have view risk at a different level and lending out our money is not within our culture anymore. It is our thinking that money can only come in but no go out, which is good for savings and normal day,s but absolutely horrendous in rainy days.
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#2
NIRP will not happen in Singapore nor anytime soon. Japan have been owe money for many years that's why they have to do something about it. In fact from their graph you can it is a gradual decision and not a spike. Most of the Japanese know this will happen.
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#3
Usually NIRP only happen to the retail banks, our money is too little for them to even consider anything. Unless you are in the private bank, they will never implement NIRP because one private banking customer could equal the 100 of us.
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#4
Instead of stimulating the economy, base on our selfish mindset.But, It is only happens in JAPAN... Just like previously said by Keith..
No one want to take risk about money...
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#5
Thanks for the post.....
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#6
Doesn't actually benefit the economy. Japan is a close up country, it may benefit them but not us.
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#7
Most of the economies of the world control the supply of money in the economy by interest rate policy, except few like Singapore which due to higher level of economic openness with the world deploy currency value management instead of interest rate interventions.
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#8
Negative interest in fact will not stimulate the economy, people will just keep their cash on hands because they know the negative interest is caused by the recession.
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