Finance, Accounting and Business Analysis (Nov 2022)
The End of the Negative Interest Rates
Abstract
Following the COVID-19 pandemic the world faced another crisis –the rapid increase in the inflation rate. In some countries, including in Bulgaria, the inflation rate reached two-digit values. Disrupted supply chains as a result of the warin Ukrainecaused shortages of goods and increased prices of basic raw materials, particularly energy sources.The loose monetary policy conducted by the central banks, especially during the past few years also contributed for the inflation rate to increase rapidly. In response the European Central Bank in July 2022 for first timein7-8 years increased its key interest rates.The main goal of this policyis to fight inflationand achieve the target level of inflation by decreasingcredit activity.Through the transmission mechanism of monetary policy, the increasein key ECB interest rates causedanincreasein market interest rates.The negative interest rates are in the pastand it is about to be seen whether the performed monetary policy will be effective. Objective:This paper examines the effect of increasedinterest rates on government securities yield,public finance and financial results of ECB and commercial banks. Methodology:The study presents the dynamics in government securities yield of Germany, Spain and Italyby examining Bloombergdata for the period January–September 2022.Also, in the paper is presented the dynamics of DAX and Euro Stoxx 50indices for the above mentioned period. For illustration of results are used graphs based on observations, comparative analysis and systematization.Through the methods of analysis and synthesis therisks of the increased key interest rates of ECBon public finance and financial results of ECB and commercial banks, areinvestigated.Results: The analysis indicates thattheadjustment of the interest rates on government securities to changes in key interest rates of ECB is immediate, and sometimes with some haste. Theincrease in the key interest rates of ECB caused an increase ingovernment securities yield which will make it harder for the most indebted countries to service their government debt because it will raise their financial costs.
