Rates and Rate Policy

rate: With little room to cut rates further, some major central banks have resorted to unconventional policy measures, including a negative rate policy, according to The Japan Times. The euro area, Switzerland, Denmark, Sweden and Japan have allowed rates to fall slightly below zero. A decade later, interest rates remain low in most countries due to subdued economic growth. How does it work Under a negative rate policy, financial institutions are required to pay interest for parking excess reserves with the central bank. The European Central Bank introduced negative rates in June 2014, lowering its deposit rate to minus 0.1 percent to stimulate the economy. That way, central banks penalise financial institutions for holding on to cash in hope of prompting them to boost lending. (news.financializer.com). As reported in the news.