Structural factors are the main driver of interest rates Against this background, the question arises as to why the ECB needs to make use of negative rates, and why interest rates were much higher in the past?
If inflation needs to be pushed up, central banks need to bring the real interest rate – that is, the nominal interest rate adjusted for inflation – below what is called the “real equilibrium interest rate” – the rate at which all factors of production are at full capacity and inflation is stable.