Question

Some investors believe a negative interest rate could be a good tool to weather through the Covid-19 crisis? Can it work?

Answer 1

Answer: Negative interest rate means the interest rate the Fed pays to depository institutions, banks, on their deposits with the Fed, i.e., on their reserve balance. Banks are required to keep a minimum balance of reserves with the Fed, called the “required reserve,” based on the level of deposits they hold. Negative interest rate is may boos liquidity in the system which is eroded by the pandemic i.e COVID-19.

Covid-19 impacted every sector and consumption power of the economy is going down, As we know the economy boost when the production as well as consumption both grow. But due to lack of money in public consumption will get decreases. When the Fed reduces the interest rate to negative it will allow Banks to lend their fund to customers However if the customer fails to pay? if still people not ready to expend there are lots of questions still unanswered as this negative interest rate will happen in the first time in history.

So, saying it will work or not is difficult but definitely it will impose challenges to econimy in long run.