Sub-zero rates get a thumbs down from finance gurus

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A new study suggests 0% is more effective than sub-zero, with behavioural finance experts saying negative rates are seen as a sign of crisis

London — Six years after the European Central Bank cut interest rates below zero, behavioural finance gurus have a message for other central banks thinking about taking the plunge: don’t.

New studies, however, seem to reinforce what some policymakers have long feared — negative rates are ineffectual and perhaps even counterproductive. Interest rates ranged from 2% to -1% but were then cut by one percentage point. Participants were then asked how much more money, if any, they wanted to borrow to invest.

“That, per se, suggests that you won’t get the impact you want because people might just save more money instead of spending.” Andersson, who has researched the subject in detail, said borrowing did rise when rates were negative but money ended up invested mostly in housing, inflating property markets and household debt.

 

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