How Have Central Banks Implemented Negative Policy Rates?

14 Pages Posted: 9 Mar 2016

See all articles by Morten L. Bech

Morten L. Bech

Bank for International Settlements (BIS) - Committee on Payments and Market Infrastructures

Aytek Malkhozov

Board of Governors of the Federal Reserve System

Date Written: March 6, 2016

Abstract

Since mid-2014, four central banks in Europe have moved their policy rates into negative territory. These unconventional moves were by and large implemented within existing operational frameworks. Yet the modalities of implementation have important implications for the costs of holding central bank reserves. The experience so far suggests that modestly negative policy rates transmit through to money markets and other interest rates for the most part in the same way that positive rates do. A key exception is retail deposit rates, which have remained insulated so far, and some mortgage rates, which have perversely increased. Looking ahead, there is great uncertainty about the behaviour of individuals and institutions if rates were to decline further into negative territory or remain negative for a prolonged period.

JEL Classification: E42, E58, G21, G23

Suggested Citation

Bech, Morten L. and Malkhozov, Aytek, How Have Central Banks Implemented Negative Policy Rates? (March 6, 2016). BIS Quarterly Review March 2016. Available at SSRN: https://ssrn.com/abstract=2744859

Morten L. Bech (Contact Author)

Bank for International Settlements (BIS) - Committee on Payments and Market Infrastructures ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland
41612808923 (Phone)

Aytek Malkhozov

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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