Why you should be scared of negative interest rates Globally

#Interest #Economy 1134

Imagine a world where banks charge depositors and pay borrowers. You could be laughing!! And saying are you crazy? It sounds unrealistic and illogical but it true in some countries. In 2014, many central banks in Europe cut the interest rates below zero to boost the economy.

Currently, there are four major economies whose 10-year government bond yield is negative. Theoretically, if you save money in banks in these countries, you will have to pay for it. That means instead of giving you interest, banks will charge you for saving. You would like to keep cash in these countries. Right!!!!

Source:investing.com, Advisesure.com, Yields as on 8th July 2016

Furthermore, there are countries whose 10-year government bond yield is so low that it will take ‘centuries’ to double the savings in banks in these countries.Besides, most of the countries have negative real effective interest rate that means the money saved in banks is losing its value.

Country 10-Year Government Bond Yield Years to double the money (Approx.) Inflation Real effective interest rate
Denmark 0.053% 1302 0.30% -0.25%
Finland 0.073% 945 0.30% -0.23%
Austria 0.089% 775 0.60% -0.51%
France 0.107% 575 0.20% -0.09%
UK 0.729% 90 0.30% 0.43%
Canada 0.960% 71 1.60% -0.63%
Spain 1.145% 61 0.80% 0.34%
Italy 1.189% 58 0.40% 0.79%
US 1.358% 50 1.00% 0.35%
Australia 1.891% 37 1.30% 0.58%
India 7.385% 10 5.76% 1.54%
Source: investing.com, Advisesure.com, Yields as on 8th July 2016

By mid-2016, approx. 50 crore people are living in economies which have negative interest rates. ‘Negative interest rates’ is an experimental move to boost the economy. But many economists have been arguing that it has increased the asset prices and can also lead to the currency war. Well, only time will reveal what negative interest rates have done to the economies. You should be thankful to god to born in India because you savings can get double in 10 years.

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