Negative interest rates
Discussion
OK, so this is something that we are bit by bit heading towards. Maybe it won't happen but maybe it will, so let's think it through.
We know how stuff works at the moment. But what happens when it flips the other way? What effect will it have on investors, and can they capitalise on it somehow? I think that for every threat there's an opportunity.
We know how stuff works at the moment. But what happens when it flips the other way? What effect will it have on investors, and can they capitalise on it somehow? I think that for every threat there's an opportunity.
unpeople said:
What would this mean for car finance rates?
Like most consumer credit, it would be lower, not minus, but lower....the idea with negative rate is so you dont leave money in the bank as you will be charged to do so. The government wants you spending, and borrowing and consuming to get the economy going.Sure would be tempting when cars and other toys are near interest free to buy....
Wonder if it would help equity price increases if people really do start borrowing to speculate/invest. Borrow £10k (or as much as you dare) at 0.5% to put into some dividend paying shares for a year would be tempting
BoRED S2upid said:
I read somewhere that if they did go negative it would only benefit banks and the likes not us we wouldn’t see a zero percent mortgage but yes money would be stupidly cheap you could borrow to invest.
Would it ever happen here though? Has it ever happened?
It might be like inverse inflation - ie you sit on a big pile of cash and watch everything around you get cheaper... and yes, whilst people currently tolerate minuscule interest on savings 'because it's safe', once they have to start paying to keep it there, they'll take it out and either spend or invest in the markets, which would surely give them a massive boost. Can't see it being sustainable though.Would it ever happen here though? Has it ever happened?
There must be someone with a big computer who can put in -1 instead of +1 and see what comes out.
Isn't Japan negative?
Simpo Two said:
BoRED S2upid said:
I read somewhere that if they did go negative it would only benefit banks and the likes not us we wouldn’t see a zero percent mortgage but yes money would be stupidly cheap you could borrow to invest.
Would it ever happen here though? Has it ever happened?
It might be like inverse inflation - ie you sit on a big pile of cash and watch everything around you get cheaper... and yes, whilst people currently tolerate minuscule interest on savings 'because it's safe', once they have to start paying to keep it there, they'll take it out and either spend or invest in the markets, which would surely give them a massive boost. Can't see it being sustainable though.Would it ever happen here though? Has it ever happened?
There must be someone with a big computer who can put in -1 instead of +1 and see what comes out.
Isn't Japan negative?
BoRED S2upid said:
Yes has been for years but a quick read seems it costs banks to deposit money with central banks so it encourages them to lend it out at low rates rather than what’s happening here now where they don’t pass on the low interest rates to us. Sounds like it could work to kickstart the economy but is far above my basic economics.
What do you mean they're not passing on low interest rates? How much is a mortgage these days? And would you lend someone that amount of money at that interest rate?bogie said:
Like most consumer credit, it would be lower, not minus, but lower....the idea with negative rate is so you dont leave money in the bank as you will be charged to do so. The government wants you spending, and borrowing and consuming to get the economy going.
Sure would be tempting when cars and other toys are near interest free to buy....
Wonder if it would help equity price increases if people really do start borrowing to speculate/invest. Borrow £10k (or as much as you dare) at 0.5% to put into some dividend paying shares for a year would be tempting
A lot of assets already have seen big price increases/bubbles - likely related to low interest rates and quantitative easing meaning money is worth less because there's more of it. The issue is it is causing big inequality due to it benefiting the "haves" a lot by increasing the value of their assets, whereas those without much assets are not improving as wages are stagnant in real terms for so long now. That is then part of the driver for the "extreme" politics we need in recent years as society becomes more unequal so people are driven to fringe parties on either side of the spectrum. Sure would be tempting when cars and other toys are near interest free to buy....
Wonder if it would help equity price increases if people really do start borrowing to speculate/invest. Borrow £10k (or as much as you dare) at 0.5% to put into some dividend paying shares for a year would be tempting
NRS said:
BoRED S2upid said:
Yes has been for years but a quick read seems it costs banks to deposit money with central banks so it encourages them to lend it out at low rates rather than what’s happening here now where they don’t pass on the low interest rates to us. Sounds like it could work to kickstart the economy but is far above my basic economics.
What do you mean they're not passing on low interest rates? How much is a mortgage these days? And would you lend someone that amount of money at that interest rate?bogie said:
Like most consumer credit, it would be lower, not minus, but lower....the idea with negative rate is so you dont leave money in the bank as you will be charged to do so. The government wants you spending, and borrowing and consuming to get the economy going.
Sure would be tempting when cars and other toys are near interest free to buy....
Wonder if it would help equity price increases if people really do start borrowing to speculate/invest. Borrow £10k (or as much as you dare) at 0.5% to put into some dividend paying shares for a year would be tempting
A lot of assets already have seen big price increases/bubbles - likely related to low interest rates and quantitative easing meaning money is worth less because there's more of it. The issue is it is causing big inequality due to it benefiting the "haves" a lot by increasing the value of their assets, whereas those without much assets are not improving as wages are stagnant in real terms for so long now. That is then part of the driver for the "extreme" politics we need in recent years as society becomes more unequal so people are driven to fringe parties on either side of the spectrum. Sure would be tempting when cars and other toys are near interest free to buy....
Wonder if it would help equity price increases if people really do start borrowing to speculate/invest. Borrow £10k (or as much as you dare) at 0.5% to put into some dividend paying shares for a year would be tempting
BoRED S2upid said:
I read somewhere that if they did go negative it would only benefit banks and the likes not us we wouldn’t see a zero percent mortgage but yes money would be stupidly cheap you could borrow to invest.
Would it ever happen here though? Has it ever happened?
It's been going on in the Eurozone, Denmark, Japan and a few others for years. If it happens here for typical retail savings, open market products are just going to keep coming down toward 0% until base rate gets to or beyond -0.50%. Off-sale products are likely to start to see beyond zero sooner, but retail savings are going to be held until it becomes a last resort. One bank will likely be bold and make the move and everyone else will follow. Personally I can't see the challengers moving anywhere near negative on open market products until base rate moves well beyond -1.00%Would it ever happen here though? Has it ever happened?
Commercial/business savings will be the test case, and would start to see negative rates in fairly short order in a negative base rate environment providing swap rates follow.
This site gives you a good idea how different countries have reacted to zero/negative rates - https://www.euro-area-statistics.org/bank-interest...
Savings ratios (amount the population save) are still stable and well above the UK average despite minimal/negative interest.
anonymous said:
[redacted]
lol, given they're government, unlikely. They're already overpaying the market by about 20bps with their Income Bonds, 40 odd for Premium Bonds given the effective rate is still 1.40%. Premium Bonds aren't linked Base Rate, and seem to be priced off the market/funding requirements. NS&I is a funding vehicle for the government and has a savings book on par/above many of the big UK banks, so I guess their pricing more depends on what the government needs funding for, or whether they want to use it to try and inject something back into the savings market e.g. pensioner bonds. Given premium bonds are a prize pool rather than individual rate of return they could well be the last bastion for UK savers. They have £90bn odd of balances to look after. 
ked. Condi said:
I doubt they will go negative here, just not something I can see the BoE doing. 0%, possibly, but less than that? No.
And even in places with negative central bank IR's, nowhere has negative interest on retail savings as far as I know.
It's absolutely happening - www.bloomberg.com/amp/news/articles/2019-12-03/ger...And even in places with negative central bank IR's, nowhere has negative interest on retail savings as far as I know.
So do we think when the bank of England say they will support the economy in anyway possible it means negative interest rates are on their way?
They have already printed loads of fake money, and they cannot surely be talking about increasing interest rates, so the only other thing they can do is have negative rates??
So ineffect savings will become less than worthless and we will all be encouraged to swap saving for more debt.........What could possibly go wrong with that plan
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They have already printed loads of fake money, and they cannot surely be talking about increasing interest rates, so the only other thing they can do is have negative rates??
So ineffect savings will become less than worthless and we will all be encouraged to swap saving for more debt.........What could possibly go wrong with that plan
.Whatsmyname said:
Maybe people will use any money they have to clear down debt / overpay stuff? I believe their has already been a big debt clearance drive during lockdown anyway?
There has, the net repayment (£7bn) has doubled the previous highest recorded repayment. But savings have also seen almost £25bn inflows too, a typical month is somewhere in the region of £2-3bn. It's also not necessarily a drive for people to take on debt, but also for savers to spend what they have as well in order to try and restart the economy through spending.
Edited by whatleytom on Saturday 13th June 07:11
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