Negative Interest Rates and What They Mean for Investors
By Mark Landis
Negative interest rate policy (NIRP)
Refers to when an economic zone’s central bank charges financial institutions on their deposits.
Why negative interest rates
Central banks seek to spur economic growth by boosting consumption and investment outside of the government bond market.
Lend more money to stop paying fee on their deposit.
Buy more because they can borrow at cheap interest rates.
Flee money markets and government bonds in search of higher yields.
Borrow at low rates to finance capital improvements and profitable projects based on long-term economic prospects.
Will NIRP Spur Economic Growth?
Low interest rates are nothing new for financial institutions as they’ve operated under these conditions since 2008’s financial crisis. Negative interest rates, however, can really pinch profits and could bring about the looser standards saw in 2008.
Brace for economic uncertainty and keep consumption low, but low rates on consumer debt may also result in new spending sometime soon.
Holding onto cash is less viable because of its negative return, yet due to uncertainty they could also wait until they see returns that are worth the risk.
Hesitant to invest because of economic conditions, but some jump on the opportunity given unprecedented low levels of interest rates.
Download the PDF “Negative Interest Rates & What They Mean for Investors” by Longwave Advisor.