Negative Interest Rate Policy (NIRP): Implications for Monetary Transmission and Bank Profitability in the Euro Area

August 10, 2016

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Format: Chicago

Andreas Jobst, and Huidan Huidan Lin. Negative Interest Rate Policy (NIRP): Implications for Monetary Transmission and Bank Profitability in the Euro Area, (USA: International Monetary Fund, 2016) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

More than two years ago the European Central Bank (ECB) adopted a negative interest rate policy (NIRP) to achieve its price stability objective. Negative interest rates have so far supported easier financial conditions and contributed to a modest expansion in credit, demonstrating that the zero lower bound is less binding than previously thought. However, interest rate cuts also weigh on bank profitability. Substantial rate cuts may at some point outweigh the benefits from higher asset values and stronger aggregate demand. Further monetary accommodation may need to rely more on credit easing and an expansion of the ECB’s balance sheet rather than substantial additional reductions in the policy rate.

Subject: Bank soundness, Banking, Central bank policy rate, Deposit rates, Financial markets, Financial sector policy and analysis, Financial services, Monetary policy, Money markets, Negative interest rates

Keywords: Bank, Bank lending survey, Bank soundness, Central bank deposit rate, Central bank policy rate, Deposit, Deposit rate, Deposit rates, Interest margin, Marginal policy rate, Monetary transmission, Money market rate, Money markets, Negative interest rates, Negative rate, Negative rates, NIRP, Policy rate, Rate, Rate cut, Rate setting, Rateminus deposit rate, Sight deposit rate, Solvency constraint, Tiered deposit rate, Unconventional monetary policy, WP

Publication Details

Pages:

48
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2016/172
Stock No:

WPIEA2016172
ISBN:

9781475524475
ISSN:

1018-5941

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