Isabel Schnabel: Going negative - the ECB's experience

Speech by Ms Isabel Schnabel, Member of the Executive Board of the European Central Bank, at the Roundtable on Monetary Policy, Low Interest Rates and Risk Taking at the 35th Congress of the European Economic Association, Frankfurt am Main, 26 August 2020.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Accompanying charts of the speech.

In June 2014, the ECB was the first major central bank to lower one of its key interest rates into negative territory. As experience with negative interest rates was scant, the ECB proceeded cautiously over time, lowering the deposit facility rate (DFR) in small increments of 10 basis points, until it reached -0.5% in September 2019. While negative interest rates have, over time, become a standard instrument in the ECB's toolkit, they remain controversial, both in central banking circles and academia.

In my remarks today, I will review the ECB's experience with its negative interest rate policy (NIRP). I will argue that the transmission of negative rates has worked smoothly and that, in combination with other policy measures, they have been effective in stimulating the economy and raising inflation.

On balance, the positive effects of the NIRP have exceeded their side effects, in particular when taking into account the compensating effects of other policy innovations, such as the two-tier system and our targeted longer-term refinancing operations (TLTROs).