The impact of low interest rates on household financial behaviour
For the greater part of 2010, short-term and long-term interest rates in Belgium were at exceptionally low levels. Nominal interest rates reached historic lows ; in real terms, only the low point of 1974 remained unequalled. The yield curve was in turn relatively steep. In the first place, the question of whether these low interest rates have an impact on the overall financial transactions of households is examined. During the recent period, interest rates in real terms have only had a limited influence on the overall volume of savings of Belgian households. It seems that the increased savings behaviour of households and the associated accumulation of net financial assets during the period 2009-2010 can largely be attributed to economic uncertainty due to the financial crisis. But it can certainly be assumed that interest rates play some part in the selection of savings and investment vehicles by households. This is the case when they have to choose between short-term and long-term vehicles : long-term investments benefit from a clear preference in periods of high long-term interest rates or when the interest rate cycle has moved into a downward phase. During the few periods with a flat or inverted yield curve, private individuals reduce their short-term deposits since they then possibly expect a fall in long-term yields. It is primarily in the choices between short-term savings vehicles that interest rates have the greatest influence, as witnessed by the persistent switching between term and regulated savings deposits, where the recent fall in short-term interest rates worked strongly in favour of the latter vehicle. The build-up of claims on technical reserves of life insurance companies and pension funds is being stimulated by the current level of interest rates, since certain existing contracts offer a guaranteed return that is higher than the current market rates. Lastly, interest rates have some influence on the commitments entered into by households, and in the first place mortgage loans. It is primarily the number of mortgages that strongly grows in the case of low interest rates. Alongside this, low interest rates may prompt price rises on the housing market with a resulting higher level of recourse to mortgage lending. But lending does not entirely follow the trend in housing prices, partly due to a more restrictive lending policy on the part of the banks.
Volume (Year): (2011)
Issue (Month): ii (September)
|Contact details of provider:|| Postal: |
Phone: (+ 32) (0) 2 221 25 34
Fax: (+ 32) (0) 2 221 31 62
Web page: https://www.nbb.be/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:nbb:ecrart:y:2011:m:september:i:ii:p:77-91. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.