WHAT NEGATIVE RATE OF INTEREST BY SOME DEVELOPED COUNTRIES LIKE JAPAN SIGNIFIES? LOOKS LIKE RENTAL FOR KEEPING CASH (OF A DEAD PERSON) IN THE LOCKER WITH THE BANK

UNDERSTANDING THE MEANING OF NEGATIVE INTEREST RATES?

Negative interest rates mean that depositors which in case here are the banks in a country pay money to save their money, being just a reversal of the normal rules of banking and economics.Like general public keeping accounts at a local bank, lenders hold their unused cash at country's central banks like the USA Federal Reserve, the European Central Bank and the Bank of Japan. Normally, they receive a small amount of interest in return.But with negative rates, central banks charge a fee instead. The idea is to encourage banks to put their money to more productive use, lending it to households and businesses. Negative rates are supposed to then ripple through contry economies by lowering the cost of borrowing for all — something that should encourage economic growth.It sounds like a lay man taking on rent a bank locker to keep his/her cash .How funny?

Which countries have negative rates?

Those with very low levels of inflation or deflation, meaning falling prices associated with weak economic growth. The European Central Bank, which oversees monetary policy for countries that use the euro, introduced negative rates in 2014. Denmark, Sweden and Switzerland, which are not part of the eurozone, also have negative rates.Japan’s central bank followed in January, announcing that it would charge commercial banks a fee of 0.1 percent on a portion of their reserves that they keep with it.

What are the economic dangers of situation like negative rates ?

1.It shows that countries economic activities are not picking up.

2.Indication of fall in corporate earnings/revenues due to lower consumer prices and thereby companies failing to repay loans to banks.

3.Overall economic sentiments are low.Public confidence go low.

4.can lead to banks failure

5.Stock markets may sooner or later collapse due to money lying idle with banks without any productive end use as corporate expected future earnings which form the basis of Stock prices valuations will be in reverse order.Companies having high stock?share valuations not supported by Price /earnings ratio (PE ratio) will be the first to get harsh beating at stock exchanges and bringing the dooms day for Retail Investors in general.This is also clearly visible as to why USA fed Reserve is finding it difficult to raise interest rates and still having dovish tone.