Negative Interest Rates - what are they?

09 December 2020 / Published in Your Money

Negative Interest Rates – what are they?

Negative interest rates (NIR) are a monetary policy tool used by some central banks whereby its Official Cash Rate (OCR) (or equivalent) is reduced to below zero, effectively charging banks to hold funds with them overnight. As a monetary policy tool, NIR is expected to stimulate the economy by encouraging businesses and households to invest more because borrowing costs are lower.

To date only a few countries in Europe and Japan have deployed NIR as a monetary policy tool to stimulate their economies. 

The Reserve Bank of New Zealand (RBNZ) has committed to keeping the OCR at 0.25% until March 2021 but has also instructed New Zealand retail banks to have systems and processes in place to implement NIR by 1 December 2020, in the event they need to be deployed to further stimulate the economy.

What could Negative Interest Rates mean for you?

At this point in time ASB is still assessing the possible impact of NIR on our customers.  

If ASB customers are impacted by NIR, ASB will communicate any changes through our usual channels which includes emails, letters, and updates with new information on our website.

Does that mean ASB will pay a customer for a loan?

It is highly unlikely that ASB will pay a customer to have a loan with us.

Will I have to pay to deposit my money with you?

ASB is currently assessing the possible impact of NIR on our non-retail deposit customers.

ASB is not expecting to charge NIR to retail deposit customers.

What can you do?

As the RBNZ continues to communicate and update its interest rate policy, you can expect us to keep you informed about any changes that may impact you. 

For more information on the potential impacts of NIR, see more information from the ASB Economics team here. You can also view a range of ASB Economic Notes here.


More articles from ASB