Banks set to exit negative interest rates

14.06.2022 - 06:17

Aktuelt

Inflation is causing central banks across the world to raise interest rates

Central banks introduced negative interest rates during the pandemic to stimulate economic activity and stave off inflation. But now that inflation has proved to be more than just transitory, banks are starting to raise their interest rates again

The negative deposit rates that Faroese banks imposed on private customers in 2019 will most likely be phased out by the end of this year.

This is the view of economist Johnny í Grótinum, following the news that the first Danish bank, Saxo Bank, announced that it will be removing its negative deposit rates on 1 July.

”It is looking increasingly certain that inflation is here to stay,” he explains.

“Interest hikes are one of the strongest tools that central banks can use to control inflation.”

The Federal Reserve, the central bank of the US, has started increasing its interest rates, and the European central bank has announced similar intentions.

If the Danish national bank increases its interest rates, this will most likely spill over to Faroese banks.

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“When the Danish national bank introduced negative interest rates, it took a few years before Faroese commercial banks followed suit because this was such an unusual measure. But I think the process will be quicker this time.”

Grótinum expects to see Faroese deposit rates turn positive sometime this autumn.

“I anticipate an interest hike of 0.25% in July and a further 0.50% hike in September. We should not be surprised to see a total interest hike of 2% over the next year.”

Read the Faroese version of this article here.

More Faroese News in English.