Wednesday, January 28, 2009

Negative interest rates are here

Why should interest rates have a lower bound of zero? We've already seen that some UK mortgages may have negative rates shortly, but this was not by design and more a result of falling base rates.

Fiat Ireland have a finance offer that has a negative interest rate - and they meant it! Details of the offer can be found here. For example if one was to buy a Fiat Bravo over 36 months with a 30% deposit or trade in the sums are:

Bravo 1.6 MultiJet Eco Active
RRP: €20,375
Deposit/Trade In: €6,115
Finance Amount: €14,260
No. of Months: 36
Monthly Repayment: €390.00
* Cost of Credit: -€220.00
APR: -1%

This is just another example of the deflation we are likely to see over the next 12 to 18 months. In a sense they could have just cut the price by €220 and offered a 0% APR finance deal. This would amount to the same thing.

But it does show that negative interest rates are entirely workable. Will any central banker be willing to take the ultimate plunge?

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