Negative Interest rates

wotsthat

Don't know if anyone has watched the video in the OP - it's a right muddle of a Q & A - I wouldn't read too much into it.

Don't the BoE consider lowering base rates every month. They've rejected the idea since 2009 but say they decided to lower rates by 1% - would it really matter if base rates were -0.5% vs. +0.5%. Wouldn't really make that much difference to savers except they'd have to work harder for a return (part of the point), might help borrowers slightly but the FT have an interesting take....

Instead, when other negative interest rates have been considered in other countries and have been occasionally implemented, such as in Sweden in 2009, the policy has been more subtle. The negative rate has not applied to the official interest rate, but to the rate of interest the central banks themselves pay on the reserves that banks park in their coffers.

The idea behind imposing negative interest rates on a portion of banking reserves, effectively charging banks rent to hold money at the BoE, is that banks will lend more in order to compensate for what in effect amounts to a tax levied by the central bank.

It's a tax on bankers - rejoice!

Grrr! bankers.

marathonic

wotsthat wrote: »

The negative rate has not applied to the official interest rate, but to the rate of interest the central banks themselves pay on the reserves that banks park in their coffers.

That makes sense. Otherwise, the banks would have to start paying out money to those on BBR+0.38% trackers (and I think some are actually on lower rates).

So, if you held a tracker, you'd be hoping for them to shy away from the idea of negative rates and, instead, just cut the BBR to 0.25%.

purch

The Bank would have to invent a new rate in order to do this, as the current rate applied to reserve balances is the official rate/base rate/bank rate.

It is the main purpose of the BOE Base Rate.

This is how the BOE influences interest rates through the base rate.

If the base rate didn't go negative as well, then they might as well do away with it altogether, as it would have little purpose if it was'nt the rate applied to reserve balances.

Pobby

Just wondering if this post really points out the world of financial problems we are in? Negative interest rates. Fantastic, not. If we had, using a bit of savvy, not allowed ourselves to get into this appalling situation, I dare say that none of these desperate measures would be required.

House prices, out of control, tax benefits to subsidies poor wages, a boon to the corporate companies et al. Housing benefit. Hello, Thatcher sold off council housing and now we have a huge tax payer bill to help folk keep a roof over their heads. Cheap lending, well has not turned out that way.Unfunded pension funds.

So as a saver what are my options? Go into buy to let, ya having a laugh. Pile everything into the stock market? Not a great performer. Oh and sorry mate. We have had yet another market crash. Start a business as others are collapsing around our ears?

I have this nasty feeling that we are on the precipice of something really quite nasty. Let Nasty Dave and his crowd keep kicking the vunerable in the face. I am, very sadly, waiting for not great times around the corner.

suburbanwifey

Pobby wrote: »

Just wondering if this post really points out the world of financial problems we are in? Negative interest rates. Fantastic, not. If we had, using a bit of savvy, not allowed ourselves to get into this appalling situation, I dare say that none of these desperate measures would be required.

House prices, out of control, tax benefits to subsidies poor wages, a boon to the corporate companies et al. Housing benefit. Hello, Thatcher sold off council housing and now we have a huge tax payer bill to help folk keep a roof over their heads. Cheap lending, well has not turned out that way.Unfunded pension funds.

So as a saver what are my options? Go into buy to let, ya having a laugh. Pile everything into the stock market? Not a great performer. Oh and sorry mate. We have had yet another market crash. Start a business as others are collapsing around our ears?

I have this nasty feeling that we are on the precipice of something really quite nasty. Let Nasty Dave and his crowd keep kicking the vunerable in the face. I am, very sadly, waiting for not great times around the corner.

I agree that 'not great times' are around the corner. I read this on Moneyweek a few days ago, what do you think of this article?

Linky

wotsthat

Pobby wrote: »

So as a saver what are my options? Go into buy to let, ya having a laugh. Pile everything into the stock market? Not a great performer. Oh and sorry mate. We have had yet another market crash. Start a business as others are collapsing around our ears?

That's the point. Inflation isn't high enough to provide an incentive for savers to divert sufficient money from investment providing a negative return to a those with a positive return. Negative interest rates might.

People with money will have to innovate/ work harder to get real returns.

IveSeenTheLight

Pobby wrote: »

So as a saver what are my options? Go into buy to let, ya having a laugh. Pile everything into the stock market? Not a great performer. Oh and sorry mate. We have had yet another market crash. Start a business as others are collapsing around our ears?

Think about this.

If the investment options you are referring to (BTL, Stock Market, Private Business Enterprize) is not considered by yourself as a good investment option.

What should the banks be investing in , in order to give savers a higher rate?

Harry_Boyle

Pobby wrote: »

Pile everything into the stock market? Not a great performer.

Not a great performer? Based on what metric?

marathonic

purch wrote: »

The Bank would have to invent a new rate in order to do this, as the current rate applied to reserve balances is the official rate/base rate/bank rate.

It is the main purpose of the BOE Base Rate.

This is how the BOE influences interest rates through the base rate.

If the base rate didn't go negative as well, then they might as well do away with it altogether, as it would have little purpose if it was'nt the rate applied to reserve balances.

It would serve the purpose of a baseline for tracker mortgages.

Banks need to improve their balance sheets and start lending. Negative interest rates would force them to lend but a negative base rate, forcing them to pay out funds to tracker holders, would deteriorate their balance sheets.

I feel that the negative rate idea will be dropped but, if they do implement it, they'll figure out away so that it won't impact trackers.

PaulF81

it could be a notional -0.1% rate, i believe the equations do funny things at 0%, all sorts of divide by zero errors etc.