Sharon Zollner

PHOTO: GETTY-IMAGES Sharon Zollner said a negative official cash rate would turn money into a “hot potato”.

You might have heard discussion in recent weeks of the possibility of New Zealand’s official cash rate falling below zero.

It’s currently 0.25 per cent, a record low, but some commentators have predicted it could turn negative as the country responds to the Covid-19 economic crisis. Westpac is expecting we could have a negative official cash rate by the end of the year.

But what would that actually mean?

What is a negative interest rate, anyway?

A “negative” interest rate turns the financial world on its head. Instead of being paid to save and charged to borrow, as we’re used to, there’s a bill for saving.

It’s important to note the discussion in New Zealand has largely been about a negative official cash rate – the wholesale rate banks pay — not the retail rates offered to customers.

A negative official cash rate would mean the banks would be charged for holding their money with the Reserve Bank overnight, rather than lending it out.

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