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Central Banks See Negative Interest Rates (#GotBitcoin)

Abrupt changes in the policies of the world’s largest central banks have rippled through smaller economies, leaving them with the prospect of low and even negative interest rates for years to come despite having mostly healthy economies. Central Banks See Negative Interest Rates (#GotBitcoin?)

 

A Central Banks Plan For Negative Interest Rates (#GotBitcoin?)

 

Policy U-Turns From The Fed And Ecb Are Cascading Around The World.

Policy rates are negative at many central banks in Europe, and are likely to stay thatway at least into 2020.

The danger is that these easy-money policies could fuel destabilizing bubbles in real estate and other asset markets. They may also leave banks with little ammunition to respond to the next economic downturn.

Economies like Switzerland’s, whose central bank signaled no change in its negative-rate policies for years to come, are small compared with the U.S. and eurozone. Still, they are home to major global banks and companies that are sensitive to exchange rates and financial conditions. With financial markets so interconnected, problems in small countries can quickly spread to larger ones.

On Wednesday, the Federal Reserve left its key policy rate in a range between 2.25% and 2.5% and indicated that it is unlikely to raise rates this year. In late 2018, officials had signaled they expected between one and three increases this year.

Two weeks ago, the European Central Bank went further, saying it would launch new stimulus to support the eurozone economy via cheap loans for banks. It also said it expected to keep its key interest rate at minus 0.4% at least through 2019, a longer horizon than before.

The Swiss National Bank said Thursday that it would keep its policy rate at minus 0.75%, where it has been since January 2015, and reduced its inflation forecast to 0.3% this year and 0.6% in 2020. The SNB cited weaker overseas growth and inflation and “the resulting reduction in expectations regarding policy rates in the major currency areas going forward.”

Norway’s central bank took an opposite turn, raising its policy rate by 0.25 percentage point to 1% and signaled more increases this year. Norway’s reliance on oil production sets it apart from other European countries because higher oil prices provide a stimulus to its economy that its neighbors don’t receive. Its currency, the krone, rose about 1% against the euro after its decision.

Still, Norway’s bank lowered its long-term rate forecast, citing “a more gradual interest rate rise among trading partners.”

Norway’s central bank may not be alone in raising its key interest rate this year. While leaving its key rate unchanged Thursday, the Bank of England reaffirmed its expectation that “an ongoing tightening of monetary policy” will be needed if the U.K. leaves the European Union on agreed terms and with a period in which to adjust to new trading terms. But it also acknowledged that should Brexit be abrupt, a cut in its key rate might be needed.

Here’s why Fed and ECB decisions matter for countries that don’t use the dollar or euro: Switzerland and countries near the eurozone but not part of it—like Sweden and Denmark—rely on the bloc for much of their exports and imports. That makes growth and inflation highly dependent on the exchange rate. Central-bank stimulus tends to weaken a country’s exchange rate, so when the ECB embraces easy-money policies as it did two weeks ago it tends to weaken the euro against other European currencies such as the Swiss franc. Because the ECB is so large, Switzerland and others can do little to offset it.

In a sign of Switzerland’s dependence on ECB policy, the franc strengthened slightly against the euro Thursday even after the SNB cut its inflation forecasts. “They are hostage to the fortunes of what the ECB does,” said David Oxley, economist at Capital Economics. Many analysts expect the SNB to stay on hold this year and next.

Like Switzerland, central banks in Sweden and Denmark have had negative policy rates for many years, and analysts say that is unlikely to change soon. Capital Economics expects Sweden’s Riksbank to keep policy rates—including a minus 1% deposit rate and minus 0.25% lending rate—on hold into 2021. It is set to make a policy decision next month.

“The gravity pull is very strong” from the Fed and ECB, said Sebastien Galy, macro strategist at Nordea Asset Management. “The consequence is [non-euro central banks in Europe] mostly end up importing policy from the ECB, so you end up with housing bubbles and a misallocation of capital.”

The negative interest-rate policies are also costly for commercial banks. In Switzerland, banks have paid the SNB nearly 7 billion francs ($7 billion) to store funds since 2015. Danish banks have paid 3.1 billion kroner ($0.5 billion) since 2014 as a result of their central bank’s negative deposit rate, currently at minus 0.65%.

It isn’t just Europe that is affected by the actions of big central banks. On Thursday, Bank of Korea Gov. Lee Ju-yeol signaled he would maintain the current pause in policy tightening, saying the Fed’s “more-accommodative-than-markets-expected” statement would allow his bank “more leeway” in taking action.

The BOK last raised rates in November, and the consensus among economists is that it will now stand pat this year.

Indonesia’s central bank kept rates unchanged for a fourth meeting in a row Thursday. The Philippine central bank stayed its hand, too.

With the Fed expected to keep rates on hold into 2020, “this may afford Bank Indonesia a window to reverse its stance and cut policy rates in the near term,” and give the Philippines leeway for an easier stance, said analysts at ING Bank.

Updated: 11-21-2019

German Bank Boosts Bitcoin — Negative Interest Rates Hit Every Account

Bitcoin-cautious Germany has seen its first bank demand that ordinary savers pay it to hold their money — even as little as €1.

According to multiple local press outlets including the Süddeutsche Zeitung on Nov. 19, the Volksbank Raiffeisenbank Fürstenfeldbruck (VRF) in Northern Bavaria is now charging 0.5% negative interest rates on the smallest deposits.

Bank On Negative Interest Rates: “We Had To”

“We Had To Do It,” The Publication Quoted The Bank’s Management As Saying.

The reason, they said, was the cost of “parking” money at the European Central Bank (ECB).

In Germany, negative interest rates previously impacted only deposits above €100,000, which constituted an interest-free allowance. VRF’s move makes it the first lender in the country to target savings below that level.

“Recently, more clients have been coming to us from other banks where they’ve already used up their allowance,” the management continued.

Germany Could “Open Floodgates” For Banks

As Cointelegraph reported, negative interest rates are beginning to form part of the ECB’s monetary policy. The phenomenon ultimately means that some portion of savers must pay banks to hold their money.

Critics have warned that such moves would incentivize the public to move into cash, while alternatives such as Bitcoin (BTC) also stand to benefit.

By contrast, Bitcoin does not suffer from the inflationary meddling in its supply and associated destruction of its value, meaning HODLers would never be forced to pay to own it.

Last month, entrepreneur Cameron Winklevoss noted the cryptocurrency was the ideal method of escaping negative rates on bonds, which account for investments worth $17 trillion.

Speaking to Süddeutsche Zeitung meanwhile, the CEO of a German consumer portal warned that VRF could “open the floodgates.”

“We’re seeing a lot of movement on the market at present,” Oliver Maier said. He noted that the ECB’s decision to cut its benchmark interest rate for banks to -0.5% from -0.4% was the cause of the upset.

Updated: 11-26-2019

China Is The Next Country To Go To Zero Interest Rates

One week ago, we showed in one chart why the global economic recovery that so many expect is just a few months away, won’t happen: as the chart below shows, China’s credit intensity since 1994 has exploded. This means that before the Global Financial Crisis, China needed on average one unit of credit to create one unit of GDP. Since 2008, 2½ units of credit are required to create one unit of GDP. In other words, that China needs much more credit than 10 years ago to have the exact same amount of GDP. Injecting more credit in the economy is not the miracle solution it used to be, and the disadvantages of credit push tend to surpass the advantages.

This explosion in China’s credit intensity in the past decade has directly fueled China’s debt engine, the same debt engine that single-handedly pulled the world out of a global depression in 2008/2009. Alas, this will not happen again: China’s public and household debts are at their highest historical levels, respectively at 51% of GDP and 53% of GDP, and the private sector debt service ratio is becoming a burden for many companies, reaching on average 19.7% This records an increase from 13% before the crisis. Overall, China’s debt to GDP is fast approaching an unprecedented 320%!

So what does it all mean? Well, even as domestic demands for liquidity are growing, foreign capital keeps flowing in and the real economy continues to slow down, which all make the country seemingly approaching a zero rates monetary condition.

While those words succinctly summarize what we said last week, they originate in an English language op-ed published today in China’s nationalist tabloid, Global Times, which for once, is surprisingly accurate, and while mostly avoiding the propaganda that Chinese media is so well known for, explains well why China may indeed be the next country to see zero rates (as a reminder, Chinese real rates are already negative due to soaring pork prices).

And while we doubt that the PBOC will be able to cut enough to bring about ZIRP, or NIRP, any time soon especially due to the ongoing hyperinflation in pork prices, if and when those do stabilize the Chinese central bank may well follow in the footsteps of every other developed central bank. In doing so, it will only infuriate Trump who has been kicking and screaming at Jerome Powell, demanding that the Fed do just that.

What We Find Most Remarkable About The Op-Ed Is How Simply, Matter-Of-Factly And Correctly, The Author Explains Away Why Zero Rates Are Coming:

Mounting Debts And The Financing Problems In The Real Economy Will Promote China To A Zero Rate Condition


Structurally, China’s non-financial corporate debt ratio is too high, and interest rates are too high. Considering that the repayment burden of existing debt has squeezed out the effective demand for new credit, and China is likely to become the next zero interest rate country

Amusingly, The Anonymous Op-Ed Writer Has Managed To State In Two Sentences What Takes Financial Pundits Hours, Days And Weeks To Explain On CNBC:

Another phenomenon comes with low rates monetary condition is that prices go up with risk asset. The US stock prices have climbed to a new high.

That said, what we found most surprising about the Global Times oped is its conclusion: instead of some jingoist bullshit about how China’s negative rates would be the greatest, and most negative in the entire world, the publication takes a very measured tone, and warns that such a monetary stance may very well spell doom for China, to wit:

Zero or negative rates monetary conditions don’t mean that debt issues and the asset bubble problem will be resolved automatically, but the opposite. Growing bubbles in the global financial market in the long run will be a reminder of financial risks.

In a slowing global economy, zero or even negative interest monetary conditions are a new trend that gives new risks and challenges to China and the international financial market. Awareness and responsiveness need to be revamped.

Of course, by the time China is approaching ZIRP, the trade war between the US and China will be at such a heated, if not outright “kinetic” level, that few will notice or care what Beijing’s monetary policy is.

We strongly urge all US policymakers to read the following Global Times article, which is nothing short of a trial balloon warning what China is contemplating next in a desperate move to stimulate its economy, no matter the cost.

China Needs To Prepare For Zero Interest Rates

The US Federal Reserve’s (Fed) continuous interest rates cuts have triggered a race of interest rates cuts among central banks around the world, increasing excessive global liquidity even further. In this case, more countries are faced with monetary conditions of zero or negative rates. Recently, former US Fed chairman Alan Greenspan noted that “negative rates” are spreading around the world. Some financial institutions even believe the world will enter a low rates condition that hasn’t occurred in 1,000 years.

Under the condition of low or zero rates, the world’s debts level keeps rising, and the bond yields continue dropping. Another phenomenon comes with low rates monetary condition is that prices go up with risk asset. The US stock prices have climbed to a new high.

For China, the demands for liquidity are growing, foreign capital keeps flowing in and the real economy continues to slow down, which all make the country seemingly approaching a zero rates monetary condition. It asks policymakers and market players to be prepared. Mounting debts and the financing problems in the real economy will promote China to a zero rate condition. In the first half of 2019, China’s overall debts accounted for 306 percent of the GDP, up 2 percentage points from the 304 percent in the first quarter, according to a report from the Institute of International Finance (IIF). The number was just around 200 percent in 2009 and 130 percent in 1999.

According to data from the National Institution for Finance and Development, China’s enterprise sector’s debts account for 155.7 percent of the nominal GDP, up 2.2 percentage points from the end of last year. It’s far beyond the government sector’s leverage ratio of 38.5 percent and the resident sector’s leverage ratio of 55.3 percent. In the enterprise sector, private companies embattled with financing problems account for 30 percent.

Structurally, China’s non-financial corporate debt ratio is too high, and interest rates are too high. Considering that the repayment burden of existing debt has squeezed out the effective demand for new credit, and China is likely to become the next zero interest rate country, according to Zhu Haibin, Chief China Economist at J.P. Morgan.

The low rates or zero rates condition will in turn reduce the effect of current monetary policy tools. In the overall picture of global interest cuts, the low inflation level causes monetary policy to face challenges. In China, the problem is severe. Currently, China is facing the superposition structural consumption of inflation and production deflation, which is squeezing the space for monetary policy adjustments. Both targeted and “flood-like” stimulus can’t overturn the economic slowdown. New monetary tools and new aims are urgently needed in the zero rates monetary condition.

In the real economy, the zero rates monetary condition will highlight structural problems. The drop of interest rates doesn’t necessarily lead to investment increases. The stratification in liquidity and credit will remain under overproduction conditions and bring new problems to small and medium-sized enterprises. The enterprise sector needs to more urgently prepare for upgrades and maintain competitiveness. The zero rates monetary condition also asks for promotion in supply side reforms, and to resolve problems in the monetary transmission mechanism.

In the finance sector and capital market, the zero rates monetary condition is also challenging for the banking industry and shadow banking. On one hand, dropping interests will narrow the profit space for banks, pressing their performance. On the other hand, enterprises which take loans as main financing means still face structural credit risks that banks can’t identify. It asks banks to build up management and capital capacity to deal with tougher competition. Zero rates will make more investors turn to direct financing, which causes new challenges in evaluation, pricing, investment modeling and investment portfolio balance. It also requires strengthening investment market building, and providing a level playing field.

Zero or negative rates monetary conditions don’t mean that debt issues and the asset bubble problem will be resolved automatically, but the opposite. Growing bubbles in the global financial market in the long run will be a reminder of financial risks.

In a slowing global economy, zero or even negative interest monetary conditions are a new trend that gives new risks and challenges to China and the international financial market. Awareness and responsiveness need to be revamped.

Updated: 4-20-2020

Britain Sells Its First Bonds At A Negative Interest Rate

The U.K. on Wednesday became the latest country to sell bonds at negative interest rates, showing investor demand for government securities is so high than some are willing to pay for the privilege.

According to the Debt Management Office, the U.K. auctioned £3.75 billion ($4.6 billion) of 3-year, 0.008% notes at an average rate of -0.003%.

The bid-to-cover ratio was just 2.15, which was the lowest since March.

The negative-yielding bond auction came as the coronavirus pandemic crushes economies across the world. Data released earlier on Wednesday showed U.K. inflation at nearly a four-year low of just 0.8% in April.

Officials at the Bank of England, notably Gov. Andrew Bailey, have discussed the possibility of setting negative interest rates though it’s not seen as likely anytime soon.

“Lowering the bank rate to 0.1% was always likely to mean that gilt yields could dip below zero. In addition, demand from the BoE has outstripped the supply of new gilts, following £100 billion of quantitative easing in just two months. That is before considering that investors, worried about the economic shock and falling inflation, have also sought out safe haven assets recently,” said Oliver Blackbourn, multi-asset portfolio manager at Janus Henderson Investors.

According to data from Tradeweb as of the end of April, France had 1.4 trillion euros ($1.5 trillion) of debt outstanding with negative yields, and Germany had 1.24 trillion euros.

Updated: 2-4-2021

BOE Tells Banks To Get Ready For Negative Rates Possibility

The Bank of England told banks to start getting ready for negative interest rates, while saying that message shouldn’t be taken as a signal that the policy is imminent.

The central bank’s Prudential Regulation Authority said most financial institutions aren’t sufficiently prepared, especially as regards to retail products like rate-tracking mortgages, so they should take at least six months to set their systems up without running undue risks. The BOE made the announcement as it held its key rate at a record low of 0.1%.

The move raises the threat that the central bank will push borrowing costs below zero, turning the lending business on its head by charging depositors to store cash while giving money back to borrowers. The BOE has been studying the case for negative rates for almost a year as a way to pull the U.K. out of its worst slump in three centuries. So far, it hasn’t followed counterparts in Europe and Japan in implementing the policy.

“I don’t think the bank would be making a statement like this if it wasn’t seriously considering using it,” said Nigel Terrington, who runs Paragon Banking Group Plc, a lender to residential landlords.

Many banks said their retail banking systems were “not built to accommodate a negative bank rate, and substantive changes would need to be made,” Sam Woods, who heads the PRA, said in a letter to financial executives that was released Thursday. He didn’t specify any banks by name.

Pound Rallies

Still, the central bank emphasized that such a radical change in policy may not occur, and that its banking-regulation arm wasn’t giving a signal about the future intentions of its monetary-policy side. That outlook lifted the pound, while money markets trimmed bets on a cut: they’re now pricing 4 basis points of easing by December, compared to 8 basis points ahead of the decision.

“The Monetary Policy Committee stressed again that these requests, and any subsequent related supervisory actions determined by the Prudential Regulation Authority, should not be interpreted as a signal that the setting of a negative Bank Rate or a tiered system of reserve remuneration were imminent, or indeed in prospect at any time,” the BOE said.

The issue was a real concern for members of the MPC: it was divided on whether to ask banks to start the work, with some members believing the economy wasn’t troubled enough to contemplate the policy and worried that the request to banks could be misconstrued, according to the minutes of the latest meeting.

“My message to markets is you really should not try to read the future behavior of the MPC from the actions we’re taking on our toolbox,” Governor Andrew Bailey said in a webcast after the report.

The European Central Bank became the first major monetary authority to cut interest rates below zero in June 2014, a year after the euro zone exited a double-dip recession, when it was worried that a too-strong exchange rate was depressing inflation.

Its deposit rate has continued to be reduced since and is now at a record-low -0.5%. It wasn’t cut during the pandemic, in part because of concerns that the pain it inflicts on banks undermines its effectiveness.

Should it end up cutting below zero, the BOE also said it will start its own work on a tiered rate system. Both the ECB and the Swiss National Bank have tiering systems that exempt some lenders’ deposits from negative rates — an effective tax on their reserves that they struggle to pass onto customers.

It’s helpful that the BOE is specifying the six-month preparation time, said John Garvey, global financial services leader at PwC. He compared it to the investment rush more than 20 years ago to make sure the millennium wouldn’t disrupt date-based information technology.

“It is a bit of a ‘Y2K’ moment,” Garvey said. “There are an enormous number of models, systems and contracts that will need to be addressed.”

Updated: 2-25-2021

Saudi Arabia Borrows At Negative Rates For First Time As Oil Recovers

The kingdom sold euro-denominated three- and nine-year bonds, raising $1.8 billion.

The recovery in oil prices has boosted investor appetite for Saudi Arabian government debt abroad, allowing the kingdom to borrow at negative interest rates for the first time.

The kingdom raised €1.5 billion, equivalent to $1.8 billion, through a bond sale on Wednesday. The yields were minus 0.057% for three-year debt and 0.646% for nine-year, the cheapest borrowing costs it has achieved to date. It was the second time it has issued bonds in euros.

One of the most oil-dependent countries in the world, Saudi Arabia has regularly tapped international bond markets since 2016 to balance its budget amid crude price swings. Its economy contracted 3.9% last year as the coronavirus pandemic hit global energy demand, according to estimates from the International Monetary Fund, leaving it with a budget deficit of 12% of economic output by December.

The government has put forward a plan to more than halve this shortfall by cutting spending this year. Its decision to issue in euros is likely part of this, analysts said.

The eurozone has had a negative policy rate since 2014, which acts as a reference for sovereign and corporate debt, bringing down the cost of borrowing in euros overall. Governments and companies around the world often tap Europe’s bond market to access cheaper funds. China was able to borrow at negative rates for the first time last year in a three-part euro-denominated debt sale.

“It makes sense for them, they diversify their funding base and get a significantly lower cost of funds,” said Zeina Rizk, an executive director and fixed-income portfolio manager at Arqaam Capital in Dubai. Wednesday’s issuance size is surprisingly small, but the order book size showed that demand was still there, she said.

Saudi Arabia’s economy is expected to rebound as oil prices recover. Economists at HSBC are expecting gross domestic product to increase up to 4% in 2021.

Global benchmark Brent crude has soared over 26% so far this year, bringing the price back to pre-pandemic levels. OPEC members and a group of large producers outside the cartel led by Russia have largely maintained the production cuts that were put in place to reduce supply and support prices while the pandemic crushed energy demand. In December, they agreed to a very moderate increase of half a million barrels a day.

In a surprise move, Saudi Arabia said last month that it would further cut its production by one million barrels a day. The adverse winter weather in Texas decreased global crude supply further, as pipelines and equipment on shale oil fields froze, although this has largely recovered in recent days.

“Saudi looks very much in control of the oil price at the moment; they’re obviously sitting on a fair bit of spare capacity,” said Kieran Curtis, an emerging-market fund manager at Aberdeen Standard Investments. He said he expects Saudi Arabia to be able to ramp up output as the global economy recovers and energy demand picks up.

Advisors to the kingdom told The Wall Street Journal that this is currently under consideration, and Saudi Arabia’s output may be increased in the coming months.

“They’re coming into this from a position of strength,” said Mohieddine Kronfol, a portfolio manager at Franklin Templeton with a focus on Middle East bonds. “Financially they’ve dealt with the virus quite well; we’re beginning to see a recovery take hold. They’ve managed to contain the fallout from the oil price” volatility.

He is overweight Saudi bonds, meaning the fund he manages holds more than the benchmark it tracks.

Still, for some investors the yields are too low for them to be interested.

“We don’t think these bonds offer much value because of narrow spreads,” said Joseph Mouawad, an international bond fund manager at Carmignac. But for investors who just invest in euro-denominated bonds, Wednesday’s issuance could make sense, he said.

“You have a lot of mandates and cash that have to be deployed in fixed-income instruments. These euros need a home,” he said. “With most of the European sovereign space in negative territory, safer emerging-market countries look more and more appealing.”

Updated: 3-1-2021

Negative Rates Force Banks In Germany To Tell Customers To Take Deposits Elsewhere

More customers are having to pay as savings have surged amid the pandemic.

Interest rates have been negative in Europe for years. But it took the flood of savings unleashed in the pandemic for banks finally to charge depositors in earnest.

Germany’s biggest lenders, Deutsche Bank AG and Commerzbank AG, have told new customers since last year to pay a 0.5% annual rate to keep large sums of money with them. The banks say they can no longer absorb the negative interest rates the European Central Bank charges them. The more customer deposits banks have, the more they have to park with the central bank.

That is creating an unusual incentive, where banks that usually want deposits as an inexpensive form of financing, are essentially telling customers to go away. Banks are even providing new online tools to help customers take their deposits elsewhere.

Banks in Europe resisted passing negative rates on to customers when the ECB first introduced them in 2014, fearing backlash. Some did it only with corporate depositors, who were less likely to complain to local politicians. The banks resorted to other ways to pass on the costs of negative rates, charging higher fees, for instance.

The pandemic has changed the equation. Savings rates skyrocketed with consumers at home. And huge relief programs from the ECB have flooded banks with excess deposits. Banks also have used the economic dislocation of the pandemic to make operational changes they have long resisted.

Alex Bierhaus, a managing director at a fintech company in Düsseldorf, received a letter from his bank, a unit of Commerzbank, last year saying it was going to start charging a 0.5% interest on deposits above €100,000, equivalent to $121,000.

To avoid paying, Mr. Bierhaus, whose savings ballooned without trips to restaurants and vacations, shifted some €60,000 to a bank in Italy and one in Sweden through an online platform called Raisin, which allows customers to shop for better rates at banks across Europe.

Mr. Bierhaus can’t even remember the name of his new banks but said he felt comfortable given that Europe has domestic guarantees on all deposits up to €100,000. He is receiving 0.8% interest on the one-year fixed deposits, similar to a certificate of deposit.

“I wouldn’t mind receiving nothing for my deposit, but being asked to pay is just too much,” the 34-year-old said, adding that he plans to use the money to buy a house before the birth of his second child this year.

“Our primary objective is not to collect such a deposit, but to advise and reallocate funds to other forms of investment,” said a Commerzbank spokesman.

According to price-comparison portal Verivox, 237 banks in Germany currently charge negative interest rates to private customers, up from 57 before the pandemic hit in March of last year. Charges range between 0.4% and 0.6% for deposits beginning anywhere from €25,000 to €100,000.

Raisin said business in Germany, its largest market, has risen sharply as more banks have begun charging for deposits. The number of customers using its platforms across Europe rose more than 40% to 325,000 in 2020. The volume of deposits that moved through the platforms rose by 50% to about €30 billion.

It also works with a handful of banks in Germany and elsewhere in Europe, embedding its service inside bank websites, making it easy for customers to shift their money.

Deutsche Bank, which charges a negative rate to new customers holding more than €100,000, bought a stake in a Raisin competitor called Deposit Solutions. Deutsche Bank clients use Deposit Solutions to pick deposit offerings currently at five different banks, including in Italy, Austria and France.

“Our job is to show clients ways to earn a return on their investments despite negative interest rates,” a Deutsche Bank spokeswoman said.

The ECB’s deposit rate, which it charges banks, is minus 0.5%. The central bank has signaled it is unlikely to change that level anytime soon. Government bond yields, against which borrowing costs are measured, are negative despite a recent uptick. German 10-year bunds yield minus 0.3%. Similar U.S. bonds yield 1.5%.

Banks in Germany are particularly hit by negative rates because Germans are big savers. About 30% of all household deposits in the eurozone are in Germany, according to the ECB. Last year, deposits in the country rose 6% to a record €2.55 trillion as people became wary of spending under the pandemic or simply had nowhere to spend, with restaurants closed and travel restricted.

In Denmark, where interest rates were cut to below zero two years before the eurozone, banks have gone from charging wealthier clients to smaller ones over the past year. The Danish central bank estimates about a quarter of the country’s depositors are currently being affected.

Nordea Bank Abp recently lowered the deposit threshold for a 0.75% charge to 250,000 danish krone, equivalent to $41,000, from 750,000 danish krone as the pandemic will likely prolong the era of negative rates.

The flip side for customers there, is that in some cases, while they pay to deposit money, they don’t have to pay anything to borrow. Nordea in January started offering 20-year mortgages at 0%.



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