A negative interest rate means the Central Bank charges negative interest on deposits made by commercial banks with the Central Bank where instead of receiving money on deposits, commercial banks must pay interest to the Central Bank. Bank will transfer this negative interest rate to their loan and deposit activities. Not necessarily banks would be charging negative interest rates, but may resort to charge a small reduced interest rate after Central Bank’s policy. In short it is a policy adopted to escape from inflation.
RBI Governor adds that a negative interest rate policy for a long time is not good for a healthy economy. Here is the excerpts from his speech.
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