Goodbye negative interest rates − Anthony R. Curmi
I was prompted to compile the schedule included with this article by the European Central Bank’s announcement on July 21 of a 50-basis points rise to zero in the key euro interest rate. This is the first increase in the past 11 years and is intended to combat the unanticipated rise in inflation which is now forecast to reach 6.8 per cent by the end of 2022, in contrast with an original forecast of 3.5 per cent. Other interest rate increases are likely to be made later in 2022. It will be recalled that the ECB first introduced a negative interest rate of -0.40 per cent in March 2016 and this was raised to -0.50 per cent in September 2019. As was the case with other banks in the EU, this had a profound effect on the profitability of local banks in view of their high liquidity, resulting in the banks paying interest on their surplus funds that were placed with the Central Bank of Malta. Notwithstanding their efforts to increase lendings to their customers, the banks ended up with higher balances with the CBM at negative interest rates. Balances held as at the end of 2021 are shown in the last column of the table. The schedule also gives comparative figures for 2020 and 2021 for...