Low Interest Rates Will Be Around for Years, ECB’s Knot Says

(Bloomberg) --

People saving money should get used to low-to-zero interest rates on their accounts, according to Klaas Knot, the head of the Dutch central bank.

Interest-rate levels are unlikely to become “fundamentally different” in the coming years, Knot said in an interview on Dutch TV channel NPO 1 on Sunday. Households in the Netherlands have so far increased their savings, despite low interest rates, said Knot, who’s also a member of the European Central Bank’s Governing Council.

The country’s third-largest lender, ABN Amro Group NV, announced earlier this month that it will introduce zero interest rates for savings in April and charge money for customers with more than 2.5 million euros ($2.8 million) in savings.

While it’s unfortunate that a whole generation won’t grow up with the sensation of getting interest income from their savings accounts, the low interest rates shouldn’t discourage people from saving for a pension or financing the studies of their children, Knot said.

Knot said the Dutch economy is doing very well, leaving room for the government to invest in future productivity growth, as state debt is decreasing and approaching 45% of GDP. The debt-to-GDP ratio in the Netherlands fell below 50% last year for the first time since the financial crisis. However, “there isn’t a need for cyclical growth” as the economy is already running on full capacity, Knot said.

The Dutch government could also lower income tax for households to stimulate future growth, he said, calling it “the most disruptive tax.”

©2020 Bloomberg L.P.