Interest across the globe on using negative rates as a policy tool has increased with global interest rates moving towards zero in the hopes of pulling economies quickly out of the COVID-19 recession. In a report by Citi GPS, analysts Matt King and Catherine L. Mann look at the positives of negative rates in terms of whether they boost credit growth, stimulate spending, or contribute to currency weakness. More importantly, they explore the side effects negative rates would have on corporates, households, banks, pensions, and markets.
negative interest rates
J.L.M. Campuzano (Spanish Banking Association) | There are structural factors driving down equilibrium interest rates at a global level. Beginning with the demographic factor, technical progress and also low productivity. As a society we are confronting a new historic era of low official interest rates and with downward pressure on interest rates in the medium and long term.
For once, BBVA chairman’s words have been a kind of premonition. Last week, when he said rather desperately that “negative interest rates are killing us,” he was not referring to Popular. But the fact remains that a few days later, the bank with Angel Ron at the helm announced a capital hike for 2.5 billion euros, slightly less than half of its stock market value. The aim of the operation is to offset the impact of future regulatory requirements and the shortfall related to the “floor clauses,” calculated at nearly 4.7 billion euros.
In the select club of central bankers it’s fashionable to play around with the idea of negative interest rates. Sweden’s central bank became the standard bearer for this new trend.
UBS | The overnight call rate is already running at close to zero after the BOJ introduced negative interest rates, partly due to problems in putting in place the systems, and no consensus view has yet taken shape about the knock-on effect and the impact on the economy or individual sectors.