It seemed like a good idea at the time: Cut interest rates below zero to revive growth.
QuickTakeNegative Rates
But as policy makers from Tokyo to Stockholm embrace the notion, investors are close to panic mode. Far from buoying financial markets this year, negative rates have helped global stocks enter a bear market, sent the cost of protection against corporate defaults soaring and driven investors to havens such as U. S. Treasury bonds and gold.
Fueling the turmoil is fear that negative rates will slam the world’s banks. In theory, they could be the panacea to cure sluggish global growth: by charging lenders fees for parking money at central banks, policy makers hope banks will use that cash to make loans, jump-starting their economies. In practice, investors worry it may squeeze bank profits and rattle money markets.
‘We’re here in an environment where central banks have to learn one message, and that is that negative interest rates are not desirable and they are not workable,’ Hans Redeker, head of global foreign-exchange strategy at Morgan Stanley in London, said in a Bloomberg Television interview. ‘When you cut into negative interest rates you have to think about the profitability of the banking sector.’
This post was published at David Stockmans Contra Corner by Bloomberg Business ‘ February 12, 2016.
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