The End of the Negative Interest Rates

Elena Ralinska ()
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Elena Ralinska: Department of Finance, University of National and World Economy, Sofia, Bulgaria

Finance, Accounting and Business Analysis, 2022, vol. 4, issue 2, 118-126

Abstract: Following the COVID-19 pandemic the world faced another crisis – the rapid increase in the inflation rate. In some countries, including in Bulgaria, the inflation rate reached two-digit values. Disrupted supply chains as a result of the war in Ukraine caused shortages of goods and increased prices of basic raw materials, particularly energy sources. The loose monetary policy conducted by the central banks, especially during the past few years also contributed for the inflation rate to increase rapidly. In response the European Central Bank in July 2022 for first time in 7-8 years increased its key interest rates. The main goal of this policy is to fight inflation and achieve the target level of inflation by decreasing credit activity. Through the transmission mechanism of monetary policy, the increase in key ECB interest rates caused an increase in market interest rates. The negative interest rates are in the past and it is about to be seen whether the performed monetary policy will be effective. Objective : This paper examines the effect of increased interest rates on government securities yield, public finance and financial results of ECB and commercial banks. Methodology: The study presents the dynamics in government securities yield of Germany, Spain and Italy by examining Bloomberg data for the period January – September 2022. Also, in the paper is presented the dynamics of DAX and Euro Stoxx 50 indices for the above mentioned period. For illustration of results are used graphs based on observations, comparative analysis and systematization. Through the methods of analysis and synthesis the risks of the increased key interest rates of ECB on public finance and financial results of ECB and commercial banks, are investigated. Results: The analysis indicates that the adjustment of the interest rates on government securities to changes in key interest rates of ECB is immediate, and sometimes with some haste. The increase in the key interest rates of ECB caused an increase in government securities yield which will make it harder for the most indebted countries to service their government debt because it will raise their financial costs.

Keywords: Negative interest rates; inflation; European Central Bank; Government securities (search for similar items in EconPapers)
Date: 2022
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