Deposit rate
| Deposit rate |
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| See also |
Deposit rate - it shapes the interest rate on one-day term deposits for those commercial banks that have excess liquidity, and no other commercial bank wants to accept deposits. It is the lower limit of one-day deposits on the interbank market. Commercial banks offer a higher interest rate to have a better offer than the central bank, thanks to which they can attract as many deposits as possible. The deposit rate is determined by the floor in the banking market, and the interest rate on this market fluctuates between the deposit rate (the lowest) and the lombard rate, i.e. the ceiling (the highest). In other words, this rate is the lowest possible interest rate on the market.Pursuant to art. 12 of the Act on the National Bank of Poland [2], all NBP interest rates (including the deposit rate) are set by one of the NBP bodies, the Monetary Policy Council (the other organs are the President of the NBP and the NBP Management Board).
According to the Act on the NBP, the Monetary Policy Council:
- sets interest rates
- sets the minimum reserves
- sets the upper limits of the NBP's liabilities towards foreign banking and financial institutions
- approves the financial plan of the NBP and the report on the activities of the NBP
- adopts the annual financial statements of the NBP
- sets the rules for open market operations
The deposit rate was the highest in 2001, amounting to 7.50%, and the lowest since March 3, 2015 and is 0.50%
The deposit rate was first established on December 1, 2001, and the reason for its introduction was the desire to limit fluctuations in short-term interest rates on the interbank market.
Other interest rates
lombard rate - the interest rate at which the central bank gives loans to commercial banks against securities collateral. Such a situation occurs when no other commercial bank wants to lend to another commercial bank.
the reference rate - the main interest rate of the National Bank of Poland (NBP), determines profitability, as a rule, 7-day money bills that are sold or bought by the NBP during open market operations to restore liquidity balance in the banking sector.
rediscount rate - Each clearing bank has the right to take a loan from the central bank. The loan is taken up by selling to the central bank the bills of exchange purchased from customers. The sale to the central bank follows a specified price, which is the rediscount rate.
Negative interest rates
After the collapse of capital markets in 2008-2009, banks lost confidence in each other, entrepreneurs and individual clients, which led to the introduction of negative interest rates. As Jarosław Klepacki wrote before the crisis, there were negative interest rates, but in real terms, ie adjusted for inflation, it was when inflation was high and progressing, and, for example, the interest rate on bank deposits could not keep up with it. In July 2009. the negative nominal interest rate was introduced by the Swedish central bank Riksbank, later by the National Bank of Denmark, the Bank of Japan and the Swiss National Bank. On June 4, 2014, the European Central Bank introduced a negative deposit rate. As Paweł Kowalewski writes, the role of banks is to deposit money from those who have surpluses (usually after the rate higher than the deposit rate, but lower than the reference rate) and give loans to those who need money (usually at a rate lower than the lombard rate, but higher than reference). As a result of the crisis, the banks lost incentives to develop lending (they preferred to deposit money in the central bank because it seemed less risky than lending to others). That is why central banks, to force commercial banks to grant loans, have introduced negative deposit rates, thanks to which commercial banks did not pay to deposit money in central banks.
References
- Dermine, J. (1986). Deposit rates, credit rates and bank capital: the Klein-Monti model revisited. Journal of Banking & Finance, 10(1), 99-114.
- Kahn, C., Pennacchi, G., & Sopranzetti, B. (1999). Bank deposit rate clustering: Theory and empirical evidence. The Journal of Finance, 54(6), 2185-2214.
- Jacewitz, S., & Pogach, J. (2018). Deposit rate advantages at the largest banks. Journal of Financial Services Research, 53(1), 1-35.
