Taxing savers by any means available

If you’re a central bank junky, you’re going to love the next two weeks. First, the European Central Bank (ECB) meets on Thursday. Analysts expect the bank to take the overnight deposit rate from negative 0.3 to negative 0.5—but only for major banks, not ALL banks. They also expect the Bank to expand its asset purchase program from €60 billion per month to €70 billion per month.

Hoarding cash

There is growing confusion over whether negative interest rates do what the people who wield them think they do. They don’t—at least not yet—incentivise people to spend money. Instead, savers appear to ‘hoard’ cash by taking it out of the banking and stuffing it in the sock drawer.

But give the academics that run these banks credit for persistence. Mere empirical evidence is not enough to get in the way of an idea they desperately hope works. And aside from the cheap oil price (which may not stay cheap for a lot longer), low rates are about the only thing contributing to positive European GDP growth. Long may they continue!

Category: Central Banks