The next step in Europe’s negative-interest-rate experiment

Source: Ludwig von Mises Institute
by Thorsten Polleit

“The European Central Bank (ECB) pushed its deposit rate to minus 0.4 percent in April 2016: Since then, euro area banks must pay 0.4 percent per annum on their excess reserves held at ECB accounts. This, in turn, has far-reaching consequences. To start with, banks seek to evade this ‘penalty rate,’ especially by buying government bonds. That inevitably pushes bond prices up and lowers bond yields. Moreover, the ECB keeps monetizing government debt as well. The result is a tremendous downward pressure on the yield environment.” (04/06/17)