How Do Negative Interest Rates Work?
On 5 June 2014 the ECB cut its deposit rate to minus 0.1 percent, from 11 June (ECB).
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1.What happens when the deposit rate is below zero?
On 5 June 2014 the ECB cut its deposit rate to minus 0.1 percent, from 11 June (ECB).
2.What are excess reserves?
Banks keep money in accounts at the central bank, much like you keep money in your bank.
3.Why does the deposit rate act like a floor under the money market?
Money market rates followed the deposit rate below zero: the rate does not stay at the central bank.
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Sources (6)
- ECB, Press release: ECB announces monetary policy measures (5 June 2014)
- Benoit Coeure (ECB), Life below zero: learning about negative interest rates, Rede 9 Sept. 2014 (BIS review r140911a)
- ECB, Monetary policy decisions (12 September 2019)
- ECB, Two-tier system for remunerating excess reserve holdings
- ECB, Monetary policy decisions (21 July 2022)
- Eigene Rechnung: Leo
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