Negative interest rates on the way?

worldtraveller

I mentioned the possibility of negative interest rates nearly 4.1/2 years ago, back in March 2008 HERE, to be maybe used in an attempt to avoid a worldwide recession.

At that time the UK base rate was 5.25% and it dropped off significantly, as I expected it would, by the end of 2008 down to 2%. A worldwide recession was, I thought at the time, a distinct possibility.

Now this scenario of negative interest rates is being looked at by the media, including Jeremy warner of The Telegraph who says today that:

"The way things are going, investors will soon be forced to pay to lend the Government their money, a topsy-turvy, Through the Looking Glass world where the lender pays the borrower a rate of interest, rather than the other way around. The profligacy of government is rewarded, the thrift of its citizens is punished. For long something of a mug’s game, saving for the future becomes completely pointless, while pension funds, forced into gilts by solvency regulation, are further crucified."

http://www.telegraph.co.uk/finance/comment/jeremy-warner/9456634/Negative-interest-rates-spell-final-defeat-for-beleaguered-savers.html

QE has pretty much been exhausted as an attempt to improve things. Maybe now we will actually see those negative interest rates?

ILW

Plenty of 4% plus fixed rates for 2 or 3 years on offer.
BoE rate seems to getting rather irrelevent.

Zero_Sum

and if people were charged interest for having money in their bank, everyone would just withdraw it, causing a run on the banks.

Never going to happen

grizzly1911

Zero_Sum wrote: »

and if people were charged interest for having money in their bank, everyone would just withdraw it, causing a run on the banks.

Never going to happen

Agree.

No doubt there would also be a rush to open overseas accounts further draining liquidity.

michaels

How about if the govt offered index linked certificates paying cpi less 1% but all the banks looked very risky - I am sure there would be takers and isn't that the same thing?

chewmylegoff

I am happy to charge interest to anyone who wants to lend me money.

oldvicar

michaels wrote: »

How about if the govt offered index linked certificates paying cpi less 1% but all the banks looked very risky - I am sure there would be takers and isn't that the same thing?

:eek: For goodness' sake don't give them ideas like this.

DiggerUK

oldvicar wrote: »

For goodness' sake don't give them ideas like this.

Too late my old mucker. This IMF report, which is more detailed than the concluding document from the meeting in May 2012, calls for a further reduction in base rate, see Page 31, section 29.

As the BOE upped QE last month, do we need to wait for bonfire night for the BOE to take their cue off the IMF about the base rate.

Seems the race to the bottom is 'zirping' along quite nicely. I put it down to the Olympic effect.
..._

grizzly1911

On the basis that BoE rate =0.5% and you can still get instant access accounts at 3.0% and 2 year accounts at 3.5/4% it will be sometime IMO before you get negative returns for J Public.

The rate is effectively nil anyway so playing with it some more isn't going to be the lever to make things happen IMO. It is a political gesture.

The BOE, ECB, IMF, FED are dealing with the unknown and I have zero confidence in any projections or recommendations they make.

Graham_Devon

I don't think negative interest rates will ever effect Joe Public. Not in terms of getting no interest on savings, or getting paid to have a mortgage.

Any negative interest rate will be solely aimed at banks, and giving them no option but to lend and take risks they now are not willing to take. It would also fuel inflation, which is something needed right now, again, not for the public.

System

I have never understood the mechanism whereby tinkering with interest rates is supposed to regulate the economy.

I run a small business, which is doing well, and appears to be profiting from the recession. Should I sit tight, guard our reserves, or invest for future growth?
Of all the factors that might influence my decision whether to borrow money for expansion, the current level of interest rates is the least relevant.
Important factors are confidence in the country's economic future, belief that we have the right sales formula, prospects of company taxation reduction, removal of red tape, slashing of local business rates, removal of car parking charges and restrictions.
But the interest rate? Unimportant. If the idea is a good one, it's got to be good at 5%, 10%, 15%. Anything might happen, and I would have to factor in a possible increase in the rate over the next 10 years. A zero rate would not encourage me to waste money on expansion I had no confidence in, neither would a negative rate.