Latest / Monetary Policy Explained with Fexingo: Central Banks, Money Supply, and Interest Rates
Why Central Banks Go Negative with Interest Rates
In this episode, Lucas and Luna explore the controversial monetary policy tool of negative interest rates. They focus on the European Central Bank's experience from 2014 to 2022, when its deposit facility rate fell to minus 0.5 percent. The hosts explain how negative rates are supposed to stimulate lending by penalizing banks for holding excess reserves, but also discuss the side effects: squeezed bank margins, increased risk-taking, and the challenge of cash hoarding. They examine why the ECB eventually raised rates back above zero, and whether negative rates will ever return. The…
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