Question

A negative equilibrium nominal rate of interest is impossible or not?

Answer 1

A bank usually does not impose any negative nominal rate.

Equilibrium is maintained by stopping real investments any further and paying zero on the balance left.

This is done with or without zero-interest-bearing existing currency.

Adjustment for transactions and costs are still considered.

The real rate involved in returns goes back to the negative scale again.

Answer 2

No, the nominal rates of interest cannot be ‘negative’. The market real market ‘interest rate’ can be negative. The market real interest rates are negative when the rate of inflation is higher than the ‘nominal interest rate’.

Explanation:

• The ‘Reserve bank of India’ uses the interest rate rule to set the monetary policy of the country.  

• If the Reserve Bank of India banks charged a negative nominal interest rate, then they would be paying money to the people for borrowing the money from them.  

• The ‘nominal interest rates’ are the rates that are advertised for ‘investments or loans’ that do not take part in the ‘rate of inflation’.