On June 5, 2014 when the ECB officially announced that the rate on its deposit facility would go negative, we posted “NIRP Has Arrived: Europe Officially Enters The “Monetary Twilight Zone.” However, while NIRP has already led to a dramatic upheaval across Europe’s economies as a result of a perfectly “unexpected” surge in the savings (as we warned would happen last October, and as the WSJ “discovered” last week) one key aspect of this “zone” was missing for the past two years: banks charging negative rates to ordinary, retail depositors.
However, after a two year wait, this final piece of the NIRP puzzle was revealed when earlier this week, Raiffeisen Gmund am Tegernsee, a German cooperative savings bank in the Bavarian village of Gmund am Tegernsee, with a population 5,767, finally gave in to the ECB’s monetary repression, and announced it’ll start charging retail customers to hold their cash.
Starting September, for savings in excess of €100,000 euros, the community’s Raiffeisen bank will charge a 0.4% rate. That represents the first direct pass through of the current level of the ECB’s negative deposit rate on to retail depositors.
“With our business clients there’s been a negative rate for quite some time, so why should it be any different for private individuals with big balances?,” Josef Paul, a board member of the bank, told Bloomberg by phone on Thursday.
The good news is that “as it looks today, charges on deposits won’t be extended to customers with lower amounts” than 100,000 euros. However, that may (and likely will) change at any moment.
Raiffeisen Gmund am Tegernsee may be a tiny bank that’s only introducing penalties to well-off customers, allegedly fewer than 140 will be affected, but in principle the ECB’s negative deposit rate was meant to encourage spending and investment in the euro area’s sluggish economy, not to tax thrifty Bavarians. A spokesman for the Frankfurt-based central bank declined to comment.
That, however, never happened, confirming once again just how clueless in gauging human behavior, and their “reaction function” (to use a trite central bank cliche) economists truly are. Recall that as we reported in October of 2015, in the aftermath of NIRP “household savings rates have also risen. For Switzerland and Sweden this appears to have happened at the tail end of 2013. As the BIS have highlighted, ultra-low rates may perversely be driving a greater propensity for consumers to save as retirement income becomes more uncertain.”
It took the economist brain trust at the WSJ about a year to also figure it out:
Policy makers in Europe and Japan have turned to negative rates for the same reason—to stimulate their lackluster economies. Yet the results have left some economists scratching their heads. Instead of opening their wallets, many consumers and businesses are squirreling away more money… Recent economic data show consumers are saving more in Germany and Japan, and in Denmark, Switzerland and Sweden, three non-eurozone countries with negative rates, savings are at their highest since 1995, the year the Organization for Economic Cooperation and Development started collecting data on those countries. Companies in Europe, the Middle East, Africa and Japan also are holding on to more cash.
To the WSJ’s great surprise, central bankers have failed… again:
[T]here is a growing suspicion that part of problem may be negative rates themselves. Some economists and bankers contend that negative rates communicate fear over the growth outlook and the central bank’s ability to manage it.
NIRP “working” precisely in the opposite way of what was intended? Unpossible.
“People only borrow and spend more when they are confident about the future,” says Andrew Sheets, chief cross-asset strategist at Morgan Stanley. “But by going negative, into uncharted territory, the policy actually undermines confidence.” You mean to say that central banks buying $200 billion in global bonds a month is sending a signla that the world has never been in a greater crisis, and that NIRP tops it off by confirming consumer fears that things are only going from bad to worse? But… but… the S&P is at all time highs.
Please follow SGT Report on Twitter & help share the message.