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

Andreas Jobst () and Huidan Lin

No 2016/172, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; rate; deposit; Policy rate; bank; deposit rate; negative rates; NIRP; unconventional monetary policy; monetary transmission; money market rate; negative rate; bank lending survey; sight deposit rate; rate cut; solvency constraint; rate setting; tiered deposit rate; marginal policy rate; central bank deposit rate; interest margin; Deposit rates; Central bank policy rate; Bank soundness; Negative interest rates; Money markets; rateminus deposit rate (search for similar items in EconPapers)
Pages: 48
Date: 2016-08-10
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Citations: View citations in EconPapers (88)

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