IMF Supporting Negative Rates
World Economy

IMF Supporting Negative Rates

Negative interest rates were first adopted in Sweden, Denmark and Switzerland in a bid to halt currency appreciation against the euro and Hungary’s central bank has also joined the move.
The International Monetary Fund said on Sunday that a move to negative rates by some of the world’s central banks would help deliver extra monetary stimulus and ease lending conditions, Reuters reported.
Six of the world’s central banks have introduced negative rates, most notably the Bank of Japan and the European Central Bank, and around a quarter of the world economy by output is now experiencing official rates that are less than zero.
They have achieved this by cutting deposit rates into negative territory, ranging from minus five basis points in Hungary to minus 125 basis points in Sweden–essentially a “tax” on deposits.
“Although the experience with negative nominal interest rates is limited, we tentatively conclude that overall, they help deliver additional monetary stimulus and easier financial conditions, which support demand and price stability,” the IMF’s financial counselor and director of monetary and capital markets, Jose Vinals, wrote in a research paper.
The report was published ahead of next week’s International Monetary Fund meetings in Washington.

  Signs of Desperation
Critics argue that the move to negative rates, especially in Japan where the central bank has failed to ignite growth or shift inflation upwards, are a sign of desperation. What is needed they say is additional government spending instead of more loose monetary policy.
In addition, they charge that the move may damage the economy by inflating financial market asset bubbles and squeezing bank profit margins.
The IMF said that evidence so far showed negative rates had encouraged investors out of low risk government bonds and reduced borrowing costs for companies.
For banks, the picture was mixed, but it said that in most cases lending rates had fallen since the introduction of negative rates by central banks, despite a squeeze on net interest margins.
The fund warned, however, that there were limits to the effectiveness of negative rates. If they remained negative for too long, cash settlement would rise, effectively undermining the policy.
It estimated that the tipping point for a move into cash would come between 75 and 200 basis points.
Longer-term, negative rates could undermine the viability of life insurers, pensions and savings, the fund warned, and they might also encourage excessive risk-taking and build financial market bubbles.

Short URL : http://goo.gl/gtMegN
  1. http://goo.gl/9an3oI
  • http://goo.gl/FuK4eH
  • http://goo.gl/5SJckc
  • http://goo.gl/Jg9wXm
  • http://goo.gl/lXDv9M

You can also read ...

Report says China’s economic development must rely on integration between innovation and industrial production,  and work must be done to ensure that innovation progress was passed on to production.
China's new economy will account for an estimated 12% of the...
The process of building a new government could take weeks, so markets may well move on from the result quickly.
Politics dominated trading on Monday, with the euro sliding as...
World countries are casting a shadow on the future of the global economic system.
Next month, when finance ministers and central bank governors...
TPP Nations Making Progress
The Trans-Pacific Partnership nations have made progress...
EU Seeks Protection for Uber-Style Jobs
The European Commission said on Monday it wants more social...
Japan PM Announces $17.8b Economic Stimulus Package
Japanese Prime Minister Shinzo Abe said he would seek to...
US to See Slower Growth
The pace of US economic growth will stay stuck in the low 2%...
The economy’s return to growth has eased pressure  on the authorities.
Now that Nigeria’s economy is recovering from its worst slump...