Thursday, March 10, 2016

Negative interest

Not impressed to see that the ECB has reduced interest rates, cutting their main interest rate from 0.05% to zero and its' bank deposit rate from minus 0.3% to minus 0.4%.

The markets were not impressed either.

We've had interest rates at very low levels for a very long time. There were reasons for this, but there is a price in terms of things like the effect on savings.

In the medium term I 'd actually like to see central banks looking to see if they can very gently edge interest rates up a little to correct for this - I'm not talking about a big increase tomorrow here - and so they have something besides quantitative easing in the locker when the next recession hits, as inevitably at some point it will.

(Obviously if they did impose a big increase tomorrow it might cause the next recession which is why I am not suggesting that.)

Negative interest rates are bad in principle and in practice. Thank goodness Britain is not in the Euro.

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