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Several European central banks - the European Central Bank, Danish National Bank, Swiss National Bank and...

Several European central banks - the European Central Bank, Danish National Bank, Swiss National Bank and Sweden’s Riksbank - cut key interest rates below zero in 2014, and in Jan 2016 Japan followed. They tried to increase lending, spur inflation and reinvigorate the economy after other options have been exhausted.

Read the following articles and discuss some of the potential danger of the negative interest rates.

“Negative Interest Rates,” Bloomberg, June 2016

“Here's Why Negative Interest Rates Are More Dangerous Than You Think,” Fortune, March 2016

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Answer #1

Few of the dangers from negative interset rate:

1. Speculative trade due to negative interest rate will increase the volatility in the capital markets mainly in derivative and currency markets.

2. It is not going to bring growth but will negatively impact banking secotr due to decrease in profit margin of these banks.

3. There is chance of capital flight from one country to another country where there is positive interest rate that is not going to help with the negative interest rate country.

4. Finally it discourage saving and interst rate based investment.

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