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Current Affairs

Negative Interest Rates

Date: 15 August 2019 Tags: Banking Schemes & Policies

Issue

 

Danish Bank launches world’s first Negative Interest rate mortgage.

 

Background

 

Interest rates in a few countries in Europe, including Sweden and Denmark, have been in negative territory. This  means that these countries are depositing  money in banks and the money is really not in demand.

Japan has also introduced negative interest rates to discourage people to stash excessive money into bank accounts. Instead they encourage spending of money to boost economy.

 

Reasons for Negative interest rates

  • When individual borrows money, he usually pays interest on it to the bank. Hence, when the rate of interest is negative, the bank should be paying the borrower
  • Banks by offering a negative rate of interest on their deposits are telling consumers to spend their income instead of storing them with the banks.
  • The basic reason for introduction of such policies is due to prevalent economic conditions. Global slowdown has resulted in recessive situation and needs impetus to boost consumption and growth.
  • By offering negative interest rates customers are encouraged to spend their income that can boost economy.

Indian context

In the present situation this policy does not apply to India due to its exemplary growth conditions. The rate of growth in India is suitable for banks to adopt positive measures.