Some Observations of Bank Interest Rates and The Impact of Negative Interest Rates

Objective: The purpose of the paper is to investigate the impact of the negative interest rate policy of the central banks on bank interest rates tracing the trendlines of interest rates of deposits and loans in short and midterm in Bulgaria and Germany. The current work aims to trace the power of the correlation between deposit and loans interest rates and to analyze the future perspectives of the monetary policy of the central banks in a situation of zero to negative interest rates. Methodology: The study examines 158 months data observations for interest rates on deposits with up to 1 and up to 2 year maturity and loans with maturity 1-5 years for households and for non-financial corporations in Bulgaria and Germany using descriptive statistics, correlation and regression analyses. Also, the correlation between deposit rates and credit card rates is studied. Results: It is found that there is a much stronger correlation between short term deposit interest rates and short to mid-term loans for non-financial corporations than for households in Bulgaria and Germany. Zero lower bound for interest rates in deposits in Bulgaria exists for deposits of households, where for a long period they stay on level of 0%. On the other hand, the zero lower bound breaks for non-financial corporations’ deposits in Bulgaria just in the last year. The interest rates on deposits in both countries show rather low correlation impact on consumption loans for households. It is found that there is no or very weak correlation between deposit rates and credit card rates in. In general, the volume of deposits is not correlated to the interest rates. Implication: The study’s results are beneficial indicator in terms of the existing negative interest rate policy and how it influences the nominal bank interest rates and how the deposit interest rates correlate to loans interest rates in a time of such policy. Important conclusions are made on a basis of the analysis in regard the future of the monetary policy in the beginning of one of the biggest crises the society has faced.