What would happen if the interest rate was minus 0.1% like in Japan instead of 50%?

Recently, the Bank of Japan (BoJ) since 2007 It ended the period of negative interest rates by increasing interest rates for the first time.

As a result, the policy rate in Japan It increased from -0.1% to 0-0.1%.

First, let’s learn what the policy rate is.

Policy interest rate determined by central banks, a country’s short-term borrowing interest rate it states. In other words, the central banks of countries determine a certain interest rate for borrowing or lending.

One of the main tools of monetary policy is the policy rate; It is used to ensure economic balance, meet the cash need in the market or control the amount of cash, control inflation and direct economic growth.

Central banks may increase or decrease the policy rate depending on current economic conditions. For example, with the decision announced today, in our country policy rate from 45% to 50% removed.

Let’s take a look at interest rates by country.

According to data published by Trading Economics; Turkey has followed a policy of increasing interest rates in recent years, following Argentina, which had an interest rate of 80%, with a 50% interest rate. country with the second highest interest rate happened.

As we mentioned at the beginning of the content, the country with the lowest interest rate is Japan has a 0% interest rate. Then comes Switzerland, which has an interest rate of 1.5%.

So, what does it mean if the interest rate is high or low?

policy rate increasingIt is generally a decision taken to combat high inflation or to stabilize exchange rates. Increasing interest rates may attract foreign investors and maintain the depreciating exchange rate level.

However, as interest rates rise, it will increase the cost of borrowing. decrease in consumer spending and investments visible. Therefore, a slowdown in economic growth may be observed.

If the policy rate is reduced On the contrary to the situation we mentioned above, it reduces borrowing costs. Therefore, there is an increase in consumption and investment expenditures. However, since consumption and therefore demand will increase with affordable loans, There is an increase in inflation.

Defined as “unusual” in monetary policy If it is negative interest It is a tool generally used to combat low growth and deflation (negative inflation). In economies where a negative interest rate policy is implemented, contrary to the custom, banks do not receive interest for the reserves they hold in central banks. interest payment situation occurs.

Now let’s get to our main topic. What would happen if negative interest was applied in our country?

First of all, in an environment where there is a negative interest policy borrowing costs will decrease. Because of negative interest rates, banks will have to pay interest to keep their reserves in the central bank. For this reason, banks provide interest to their customers rather than paying interest to the central bank. tend to give low-fee loans It will happen.

Low-cost debt instruments tendency to consume and invest can increase. For example, between 2021 and 2023, when interest rates were reduced in our country, It was not a coincidence that house and car prices increased. The affordability of loans encouraged individuals to buy houses and cars, and as a result, the prices of these products increased as a result of the increasing demand for houses and cars.

In summary; The fact that low loans increase demand causes prices to increase, and this brings with it a rising inflation rate brings.

Low policy interest rates cause the local currency to lose value.

Because interest rates are low causes foreign investors to lose interest and this results in the local currency falling.

The depreciation of the local currency will actually make the goods the country sells abroad cheaper. increase in export rates may cause.

On the other hand, individuals who anticipate that their money will lose value due to negative interest rates reduce their savings. tend to spend more is happening.

Changes may be seen in individual investment preferences.

Policy rate is negative instability in the financial system can create. As a result of this instability, an increase in the risk-taking tendency of individual investors may be observed.

For example, the investment income of a person who generally invests in fixed income assets will decrease due to negative interest. This situation makes investors investing in riskier financial assets can push.

The increase in demand for risky financial assets in those markets It can increase prices and volatility. To give an example, during the period when interest rates were reduced in our country, many people with or without financial literacy Get caught up in the cryptocurrency craze We can show you.

In summary; against situations such as negative inflation or slow growth Negative interest, which is an intervention method, aims to ensure that the economy in question gains an advantage in the long term when used appropriately. However, if it is not used appropriately and balancedly, it can cause huge and irreparable consequences.

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