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Slovak public finances benefit from negative interest rates on bonds: expert

Xinhua, May 21, 2015 Adjust font size:

Negative interest rates on government bonds are a very positive thing for public finances, and they also lead to savings for households and businesses, said Sberbank's chief economist Vladimir Vano in a debate on TABLET.TV on Thursday.

Vano said where public finances were concerned, the state saves on interest rate expenditures. Where households and businesses have an advantage, is that they can step up investments with the residual benefit of contributing more to the economic recovery.

Slovakia has borrowed funds on financial markets with negative interest on two occasions this year. Most recently, Slovakia's Debt and Liquidity Management Agency (ARDAL) last month sold government bonds maturing on Jan. 19, 2017 worth 54 million euros (60 million U.S. dollars) at a minimum interest rate of minus 0.0200 percent.

According to Vano, negative yields on bonds is due to the European Central Bank loosening it's monetary policy whereby additional liquidity is pumped into the banking sector in an effort to boost the eurozone's economic recovery and avert deflation.

Even though the volume of funds in circulation has been increasing, prices have remained unaffected. Average harmonized inflation for the 12-month period to April amounted to minus 0.2 percent on the year.

"A monetary policy isn't intended for a month or two ahead. As per textbooks, the economy is expected to respond in nine to 18 months. The first few months of this year were marked by signs of recovery, for instance, on the credit market," said Vano. Endit