Negative interest rates elicit negative reactions
A survey shows that zero is a major psychological barrier for savers as 77% of respondents will withdraw their money from their savings accounts if rates went negative.
IN their struggle to keep up the momentum of economic growth, central banks are turning to negative interest rate policy (NIRP) as their weapon of choice. Amid doubts about the impact of further large- scale asset purchases, the Bank of Japan (BOJ) has recently followed the European Central Bank (ECB) and other European counterparts in imposing negative rates on the reserves that banks hold with them. Meanwhile, weak economic data has even prompted talk of the Federal Reserve potentially having to reverse course and join the NIRP club.
But there are doubts about NIRP too. In particular, if banks resist passing on negative rates for fear of triggering a deposit flight, they will fail to incentivise savers to spend. NIRP could still work via boosting asset prices or driv…
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