"Give me some of that money." Why does Trump want negative interest rates? What is its impact on the Gulf?

محمد أفزاز Free Membership

US President Donald Trump renewed his criticism of the Federal Reserve's policy on interest rates, calling for the adoption of negative interest rates like competitors, what experts said about negative interest?

Trump said the US central bank had weakened US competitiveness against other countries, noting that it was "too slow to cut interest rates."

"Remember that we are actively competing with countries that openly lower interest rates so that in fact many now get money when they repay their loans, which is known as negative interest. Who among you heard of such a thing?"

"They gave me some of that, they gave me some of that money, I want some of that money, our reserve doesn't let us do this," he said, referring to negative interest rates.

A number of European countries and Japan have adopted zero and negative interest rate policy to stimulate growth, increase spending and investment, and support export abroad.

The Fed has cut interest rates three times since last July, but this follows a series of nine interest rate increases since late 2015.

Trump has often attacked the central bank for not going further in cutting interest rates, and Federal Reserve Chairman Jerome Powell is likely to stabilize interest rates after cutting interest rates three times this year.

What does negative interest mean?
Negative interest rates are a monetary policy used by central banks in deflation.

In deflationary situations, companies and individuals accumulate funds instead of spending and investing, affecting lower demand, lower prices, and consequently declining productivity and increasing unemployment.

How to apply?
The negative interest rate policy is applied in transactions between commercial banks among themselves, or between banks and the central bank, but between banks and individuals, this is done only with very narrow limits for depositors only.

Financial analyst Nidal Khouli says zero or negative interest is only on deposits rather than lending, and banks in this case have the right to charge amounts on deposits in dollars, for example.

He adds in an interview with Al Jazeera Net that the negative interest on depositors' money makes banks save money, then re-lending to customers at very low prices, which stimulates demand in the markets.

He pointed out that the negative interest aims to pay banks not to deposit their money in the central bank, and in return direct these funds to lend to companies and individuals at low interest rates, which stimulates the economy in terms of demand, spending and investment.

Currency war
The advantage of negative interest rates is that they contribute to the depreciation of the local currency, making exporters enjoy a competitive advantage in foreign markets.

Nidal Khouli believes that negative interest rates are one of the tools of the currency war the world has been witnessing for years.

He believes that by pressuring the US central bank, Trump is trying to counter the policy of global central banks (the European Central Bank, the Bank of England and the Japanese Central Bank) that have cut interest rates to zero and in some cases below zero, making their currencies more competitive than the dollar, giving exporters strength Larger.

He pointed out that the dollar has risen against other hard currencies because of the recovery of the US economy, which negatively affected US exports.

Some experts oppose the adoption of a negative interest rate policy because it affects the value of savers' money and pushes them to further reduce spending, not as it aims to incite savers to reduce their savings and motivate them to spend.

What about the region's banks?
Taha Abdul Ghani, general manager of Nama Financial Advisors, believes that if the US central bank adopts a negative interest rate policy, the returns on the reserves of the Gulf states and the region will be negatively affected.

He says in an interview with Al Jazeera Net that these countries will either accept to hold reserves of the dollar without receiving returns, or they will have to inject them into the US economy in the form of investments, in both cases will be the biggest beneficiary is Donald Trump.

Taha Abdel Ghani does not rule out the possibility that banks in the region will resort to tracing American policy, which means lending at low interest rates in exchange for keeping interest-free deposits.This will add to the economy, but in turn will have negative inflationary effects as prices rise.