Negative interest on excess reserves

Negative interest on excess reserves is an instrument of unconventional monetary policy applied by monetary authorities in order to encourage lending by making it costly for commercial banks to hold their excess reserves at central banks. Such policy can be associated with very slow economic growth, deflation, and deleverage.

Examples

Europe

The European Central Bank and central banks of other European countries, such as Sweden, Switzerland, and Denmark, have paid negative interest on excess reserves—in effect taxing banks for exceeding their reserve requirements—as an expansionary monetary policy measure.

Japan

In January 2016, the Bank of Japan followed other European central banks and lowered its interest rates below zero, after several years of keeping them at the lower end of the positive range. The existing balances will keep on yielding a rate of 0.1 percent; the reserves that banks are required to keep at the BOJ will have a rate of zero percent, and a rate of minus 0.1 percent will be applied to any other reserves.

See also

• Excess reserves
• Forward guidance
• IOER – interest on excess reserves
• Negative interest rate
• Zero interest rate policy (ZIRP)

External links

• Why has the ECB introduced a negative interest rate? (European Central Bank, June, 2014)
• "The ECB's Negative Interest Rate: The Fed May Be Forced To Follow Its Lead" (former Dallas Federal Reserve President Bob McTeer, Forbes, June 5, 2014)
• "Will the European Central Bank’s negative interest rate be an economic positive?" (Simone Pathe, PBS Newshour, June 9, 2014)