Negative interest rates to tackle the 2008 crisis. Who did it first?

During the 2008-09 global financial crisis, Sweden’s central bank was the first country to introduce a negative interest rate on bank reserves parked with the central bank in a bid to discourage banks from hoarding cash and promote lending to the wider economy. The interest rate was lowered to -0.25%. The policy lasted a little over a year, ending in mid-2010.

All commercial banks are required to park a certain proportion of their deposits with the central bank. Higher this proportion, lower is the amount available to lend to the broader economy. Most of the time, there is a certain statutory proportion of deposits that banks are required to maintain in reserves with the central bank.

While central banks around the world were slashing interest rates in a bid to encourage lending and spending within economies, commercial banks were unwilling to lend because of the general lack of confidence in future economic growth. Already saddled with bad debts, they didn’t want to face a situation in which more loans turned sour.

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