Interesting to know

Negative interest is not a catastrophe

The European Central Bank introduced negative interest rates at one of its recent meetings. It cut its deposit rate for banks from zero to -0.1%, while the benchmark interest rate was lowered to 0.15% (a record low) from 0.25%. The ECB is the first major central bank to introduce negative interest rates. The regulator took these measures in anattempt to encourage banks to lend to businesses rather than hold on to money.

What is a result of these actions? It is a reasonable question that has a predictable answer: the single European currency tumbled in the forex market contributing to the stock indexes growth on the leading European stock markets. Why did the euro slump if experts had said unanimously the rates to be cut? The thing is that large financial institutions withdraw their investments from the euro as the law in many countries forbids holding funds in assets with negative yields, and a deposit with the ECB is exactly this kind of asset now.      

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