Blog – November 2020
The Spectre of Negative Interest Rates
We’ve noticed an increasing number of articles mentioning the possibility of moving to negative interest rates.
The European deposit rate has been set at minus 0.5% since 2014 for overnight bank deposits and in Denmark (which is outside the eurozone) the rate is currently minus 0.6%. These compare to the current Bank of England base rate of plus 0.1%.
Introducing a negative interest rate encourages the banks to lend, thereby increasing the flow of money and this supports growth. The impact of the pandemic has been to actually increase the level of household savings overall, hence, as a move to put money back into circulation, this could make sense to the government economists.
What would be the effect on M&A of such a move?
The likelihood would be that the banks pass on these rates to savers, thereby charging companies and possibly savers to hold their money on deposit. For many years the returns on cash have been derisory, and this move can only further encourage companies to put the money to work – and one key option is to acquire.
Whilst from an individual saver’s perspective the move to negative rates might be unwelcome, it should be further tonic to drive acquisition interest and activity.
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