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Deutsche Bank AG Chief Executive Officer Christian Sewing said the European Central Bank missed an opportunity to reverse its negative interest rates when the economy was strong, joining bank executives in stepping up criticism of policy makers ahead of their rate decision.
Speaking at the World Economic Forum in Davos, the head of Germany’s largest lender said cutting rates below zero was right after the euro crisis to “safeguard” the currency. But the longer low and negative rates persist, the bigger the gap between corporations and investors who benefit from cheap borrowing and those who are seeing their retirement savings erode, he said.
“We missed the exit,” Sewing said at a panel discussion on the same day ECB policy makers meet in Frankfurt. While he doesn’t see a quick reversal, he said he expects “one or the other” change under new ECB President Christine Lagarde.
Lagarde and the rest of the ECB’s governing council are expected to keep rates unchanged, but they will also announce the first appraisal of their inflation goal since 2003, plus a deep dive into new challenges such as climate change and digital currencies. Economic concerns for now have faded with U.S.-China trade tensions easing, Brexit back on track, and monetary support locked in.
Sewing’s criticism echoed comments by Axel Weber, the former head of Germany’s Bundesbank who is now chairman of UBS Group AG, and by Kees van Dijkhuizen, the head of Dutch lender ABN Amro Bank NV. Weber said in an interview on Wednesday that negative interest rates are a “‘distortion” rather than a “useful tool” in monetary policy.
“The longer you keep that policy,” Weber said, “the more the side effects become important and the less bang for your buck you get.”
The ECB introduced negative rates on deposits in 2014, pushing them further below zero last year, when it set the rate at -0.5%. The idea is to revive the economy by forcing holders of excess cash to invest or spend it, but it’s unpopular in countries like Germany or the Netherlands, which have traditionally high savings rates.
The policy has also left banks struggling to cope, because they’re forced to pay the ECB for excess deposits and they make less on loans when rates are low. Euro-area lenders have paid 25 billion euros ($27.7 billion) to deposit funds at their central bank since June 2014, according to data compiled by Bloomberg. Lenders in the U.S., by comparison, receive interest from their central bank for deposits.
Negative rates are “not a good place to be,” van Dijkhuizen said in a separate interview with Bloomberg TV in Davos.
(Updates with cost of negative rates in penultimate paragraph.)
–With assistance from Nicholas Comfort and James Hirai.
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To contact the editors responsible for this story: Dale Crofts at firstname.lastname@example.org, Christian Baumgaertel, Ross Larsen
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