It seemed like a good idea at the time: Cut interest rates below zero to revive growth.
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 to put global stocks on the brink of 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, negative rates 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.
About a quarter of the world economy is now in negative-rate territory with more than $7 trillion of government debt offering yields less than zero.
On Thursday, Sweden’s central bank lowered its key interest rate even further below zero, cutting the repo rate to minus 0.50 percent from minus 0.35 percent.
Last month, the Bank of Japan joined counterparts in the euro-zone, Denmark, Sweden and Switzerland with the same policy experiment.
Federal Reserve Chair Janet Yellen said this week that the Fed was taking another look at negative interest rates as a potential policy tool if the U.S. economy falters.
Almost $8 trillion has been erased from global equity values this year as the benchmark MSCI All-Country World Index tumbled 20 percent from its May high, entering a bear market. Negative interest rates have suddenly eclipsed investor worries over China’s fading economic miracle and the near two-year collapse in oil prices.
Far from buoying financial markets this year, negative rates have helped to put global stocks on the brink of 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, negative rates 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.
About a quarter of the world economy is now in negative-rate territory with more than $7 trillion of government debt offering yields less than zero.
On Thursday, Sweden’s central bank lowered its key interest rate even further below zero, cutting the repo rate to minus 0.50 percent from minus 0.35 percent.
Last month, the Bank of Japan joined counterparts in the euro-zone, Denmark, Sweden and Switzerland with the same policy experiment.
Federal Reserve Chair Janet Yellen said this week that the Fed was taking another look at negative interest rates as a potential policy tool if the U.S. economy falters.
Almost $8 trillion has been erased from global equity values this year as the benchmark MSCI All-Country World Index tumbled 20 percent from its May high, entering a bear market. Negative interest rates have suddenly eclipsed investor worries over China’s fading economic miracle and the near two-year collapse in oil prices.
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