CIO Insights: Negative Interest Rates

The idea that people generally prefer consuming goods and services today rather than at some point in the distant future is a basic tenet of economic theory. Based on this, savers usually require positive real interest rates to forsake current consumption and hand over their money. Of course, borrowers can only pay positive rates if their investments generate real positive earnings, usually on the back of a growing economy. At a real interest rate of zero, however, investments which do not foster growth may look attractive. If real rates fall below zero, even loss-making investments might pay off.