Falling Interest Rates

[Perianne]

I don't understand finance. This seems to me to be the same as deficit spending.



Swedish interest rates have been pushed deeper into negative territory, as the country’s central bank became the latest to introduce monetary stimulus in a world of falling oil prices
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The Riksbank elected to cut its policy rate from minus 0.35pc to minus 0.5pc on Thursday, lower than the 0.45pc anticipated by analysts. Policymakers said that the decision reflected a “stronger economy, but longer period of low inflation”.



“The Riksbank’s very expansionary monetary policy has helped to strengthen the economy and reduce unemployment,” the central bank said, adding that more stimulus had nonetheless become necessary, as “the upturn in inflation is still not on a firm footing”.





http://www.telegraph.co.uk/finance/economics/12151611/Sweden-takes-negative-interest-rates-even-lower-as-Riksbank-fights-to-keep-up-with-global-stimulus.html

[fj1200]

I don't understand finance. This seems to me to be the same as deficit spending.

No.


A negative interest rate means the central bank (http://www.investopedia.com/terms/c/centralbank.asp) and perhaps private banks will charge negative interest: instead of receiving money on deposits, depositors must pay regularly to keep their money with the bank. This is intended to incentivize banks to lend money more freely and businesses and individuals to invest, lend, and spend money rather than pay a fee to keep it safe.
http://www.investopedia.com/terms/n/negative-interest-rate-policy-nirp.asp

[aboutime]

I don't understand finance. This seems to me to be the same as deficit spending.





http://www.telegraph.co.uk/finance/economics/12151611/Sweden-takes-negative-interest-rates-even-lower-as-Riksbank-fights-to-keep-up-with-global-stimulus.html



Perianne. There is a really easy way to try and understand this. IF banks cannot EARN money because Interest rates are so low...they can't lend money, or make it. They are unable to compete with the Big banks who suck up all the profits by selling MONEY (Making Loans), at lower rates. Too much of LOW INTEREST RATES...puts small banks, and lending institutions OUT OF BUSINESS. Then....the BIG banks, and the GOVERNMENT raise the Interest rates to cause INFLATION. Sorry there's no easier way to explain it. Bottom line...Banks NEED to make money...they are BUSINESSES.