Negative interest rate policy, as they say

Krisis Finansil Cina: Perspektif Kebijakan Moneter, Corporate Finance (Analisa Laporan Keuangan), dan Investment Banking (Valuasi Nilai)
oleh : Sando Sasako
Jakarta, 28 Maret 2016

ISBN 978-602-73508-5-4

Untuk mendapatkan buku ini,
silahkan hubungi kami di +62 851 0518 7118


 
Krisis Finansil Cina
 


Daftar Isi

Kata Pengantar iii
Kata Pengantar dalam buku ‘Corporate Financing’ v

Daftar Isi vii
Daftar Tabel x
Daftar Bagan xi

Pendahuluan 1
Masalah Pengukuran 1
Data, Informasi, Fakta 2
Data Mining 4
Pemilahan Data 5
Business Intelligence 7
Analisa Kuantitatif 8
Analisa Data 8
Self-Organising Map 9
Hambatan bagi Efektivitas Analisa Data 11
Confirmatory Data Analysis 11

Analisa Finansil 11
Standar Akuntansi Keuangan (PSAK, GAAP, IFRS) 12
Peran Perusahaan Audit dalam PSAK 12
Analisa Finansil sebagai Alat Ukur Kinerja Keuangan 12
Analisa Fundamental 13

Rasio-rasio Finansil 14
Pertumbuhan 14
Produktivitas 14
Kontribusi terhadap Stakeholder 14
Dividend Policy Ratios 14

Rasio-rasio Aktivitas Usaha 15
Perputaran aset (asset turnover) 15
Perputaran aset rata-rata (asset turnover) 15
Rasio perputaran aset tetap (fixed assets turnover) 15
Perputaran piutang (receivables turnover) 16
Rata-rata periode penagihan (average collection period) 16
Perputaran inventaris (inventory turnover) 16
Periode inventaris (inventory period) 16

Rasio-rasio Likuiditas 17
Rasio lancar (current ratio, CR) 17
Rasio modal kerja (working capital ratio) 18
Rasio cepat (quick ratio, QR) 18
Rasio kas (cash ratio) 18
Pendapatan lancar (current income) 19
Rasio pendapatan bunga (Time Interest Earned, Interest Coverage) 19
Rasio investasi terhadap kebijakan (investment to policy ratio) 19
Rasio utang lancar terhadap inventaris (current debts to inventory ratio) 19

Rasio-rasio Profitabilitas 19
Marjin laba kotor (gross profit margin) 20
Marjin laba bersih (net profit margin) 20
Return on Equity (ROE) 20
Return on Asset (ROA) dan Return on Capital Employed (ROCE) 20
Return on Capital (ROC) dan Return on Invested Capital (ROIC) 21
Return on Investment (ROI) 21
Beban bunga (Interest Coverage, Times Interest Earned) 22
Beban finansil (financial leverage) 22
Efisiensi beban finansil (efficiency of financial leverage) 22

Rasio-rasio Struktur Modal 23
Rasio utang terhadap modal (debt to equity ratio) 23
Rasio kapitalisasi (capitalisation ratio) 24
Tingkat pertumbuhan ekuitas (equity growth rate) 24
Beban finansil (financial leverage) 24
Rasio utang (debt ratio) 24
Rasio modal saham terhadap aset tetap bersih 24
Rasio utang lancar terhadap modal saham (Current Debts to Net Worth Ratio) 24
Rasio kewajiban total terhadap modal saham (Total Liabilities to Net Worth Ratio) 25
Rasio aset tetap terhadap modal saham (Fixed Assets to Net Worth Ratio) 25

Rasio-rasio Kecukupan Modal 25

Solvabilitas 25
Solvency ratio (SR) 26
Rasio utang terhadap aset (Debt to Asset Ratio, DAR) 26
Rasio utang terhadap modal (Debt to Equity Ratio, DER) 26
Kemampuan laba menutup biaya tetap (Fixed Charge Coverage). 26
Rasio pinjaman terhadap aset (Loan to Asset Ratio, LAR) 27
Rasio pinjaman terhadap simpanan (Loan to Deposit Ratio, LDR) 27

Risks vs Rewards 27
Risiko Mencari Keuntungan 28
Efek Domino Risiko 29
Rent-Seeking Behaviours 30

When the Deal Slips Away 32
Indikator Kesulitan Finansil 34
Indeks Kerentanan 36
Stress Test 38
Indeks Stabilitas Sistem Keuangan 40
Financial Stability Index 43
Indeks Kesehatan Finansil ala IMF 44
Laporan Stabilitas Finansil Global ala IMF 48
Operasi Moneter 48
Inflasi Terencana sebagai Prasyarat Kestabilan Finansil 50

Dinamika Pasar Finansil 52
Dinamika Aset Finansil 53
Kerapuhan Sistem Finansil 54

Krisis Finansil 55
Menelikung Krisis Finansil 56
Kasus LTCM 57
Krisis Subprime Mortgage 60
Kasus Lehman Brothers 63
Krisis Eurozone 64
Spiral Kekacauan Krisis Eurozone 65
Debt Exposures of PIGS 66
AS 68
Inggris 69
Jerman 69
Perancis 70
Jepang 71
Yunani 72
Irlandia 73
Italia 74
Portugis 74
Spanyol 75
Some PIGS are More PIGS 76
Krisis Finansil Cina 77
Kenapa Cina menjadi begitu penting? 78
Bermain dengan nilai tukar 81
Pasar CNH 82
Dominansi nilai tukar CNH terhadap CNY 87
Qualified Foreign Institutional Investor 90
Renminbi Qualified Foreign Institutional Investor 90
Qualified Domestic Institutional Investor 91
Qualified Domestic Individual Investor 91
Shanghai-Hong Kong Stock Connect 91
Pilot Free Trade Zones 91
Mainland-Hong Kong Mutual Recognition of Funds 92
Kenapa pasar finansil Cina bisa crash? 92
Ketika gelembung finansil Cina mulai pecah 93
Pelonggaran likuiditas sebagai solusi ancaman resesi 94
Aksi pemadam kebakaran ala pemerintah Cina 96
Permasalahan fundamental ekonomi Cina 99
Beban utang Cina 101
Kebijakan dan otoritas moneter Cina 102
Pasar obligasi Cina 103
Obligasi Panda 105
Obligasi dim sum 106
Daftar emisi obligasi dim sum 108
Aksi pemerintah Cina terhadap masalah tunggakan utang 110

Policy and Politicisation 113
Primary Dealer 113
Solusi Teoritis, Bisa dan Benarkah? 116
Kebijakan Too Big To Fail 117
Cashless Solution 118
Minyak sebagai Mata Uang dan Sumber Kemakmuran 120
Negative Interest Rates Policy 125

Kas 129

Pengadaan Aset 130
Asset Investment 130
Asset Financing 131
Capital Expenditures 132
Menghitung Biaya Modal 134
Biaya utang 134
Biaya saham preferensi 134
Biaya laba ditahan 134
Biaya ekuitas eksternal 135
WACC 135
Biaya modal marjinal 136
Break point 136

Off-Balance Sheet Financing 136
Perubahan Portofolio The Fed 136
OBS sebagai Produk Inovasi Menyembunyikan Risiko Finansil 137
MBS sebagai Produk Rekayasa Finansil Penyebab Krisis 2008 139
Bencana Prilaku Berisiko Berlebihan 141
Bertaruh pada Aset Fiktif 142
Akuntansi OBS 144
Fleksibilitas Pasal Karet 145
Penyesuaian Pasal Karet 146
Memanfaatkan Celah Hukum 147

Equity Financing 148

Debt Financing 149

Struktur Modal 152
Teori Struktur Modal 153
Teori Pensinyalan 154
Struktur Modal dalam Praktek dan Realitas 155
Menghitung Tingkat Optimal Struktur Modal 155
Besar Beban Operasi 156
Analisis EBIT/EPS terhadap Efek Beban Finansil 157
Besar Beban Finansil 157
Besar Beban Total 158
Efek Struktur Modal terhadap Harga Saham dan Biaya Modal 159
Likuiditas dan Arus Kas 159

Struktur Finansil 160
Ukuran Optimal Beban/Struktur Finansil 161

Valuasi Nilai 162
Corporate Financing vs Investment Banking 163
Pentingnya Valuasi Nilai 164
Valuasi Usaha 164
Komponen Pendapatan 166
Komponen Neraca 167
Komponen Arus Kas 167

Time Value of Money 168
Future Value 169
Future Value Interest Factor for i & n 169
Present Value 169
Present Value Interest Factor for i & n 169
Future Value untuk Anuitas Biasa 169
Future Value Interest Factor untuk Anuitas Biasa 170
Future Value untuk Anuitas Awal 170
Present Value untuk Anuitas Biasa 170
Present Value Interest Factor untuk Anuitas Biasa 170
Present Value untuk Anuitas Awal 170
Present Value untuk Perpetuities 171
Present Value untuk Aliran Arus Kas Variabel 171
Future Value untuk Aliran Arus Kas Variabel 171
Future Value untuk Periode Semesteran atau lainnya 171
Amortisasi Pinjaman 172

Referensi 173
Web 173
e-book 177
Buku 180

Daftar Lampiran

Lampiran – Variabel yang umum dipakai sebagai ukuran stabilitas finansil 181
Jenis data yang digunakan dalam laporan stabilitas finansil beberapa bank sentral (AT-ES) 181
Jenis data yang digunakan dalam laporan stabilitas finansil beberapa bank sentral (GB-TR, ECB, IMF) 182
Variabel yang umum dipakai sebagai ukuran stabilitas finansil 183

Lampiran – Ukuran dan skenario dalam laporan stabilitas finansil global, Okt. 2015 185
Ukuran likuiditas 185
Ukuran utang korporasi di pasar emerging 187
Asumsi dalam skenario gangguan pada pasar aset global 189
Mekanisme transmisi kejutan dalam skenario gangguan pada pasar aset global 190
Asumsi dalam skenario normalisasi yang berhasil 191
Mekanisme transmisi kejutan dalam skenario normalisasi yang berhasil 192

Lampiran – Ukuran Kerentanan Finansil 193
Indikator valuasi risk appetite / aset 193
Indikator ketidakseimbangan non-finansil 194
Indikator kerentanan finansil 195
Indikator Kebijakan Macroprudential 196

Lampiran – Daftar Indikator dalam ISSK Bank Indonesia 197

Lampiran – Profil Cina 199

Lampiran – Jumlah (instrumen) utang Cina menurut emiten, domestik, nasional, internasional, 2015Q2-2015Q4 201

Daftar Tabel

Table 1 – Aktivitas M&A di business intelligence dengan nilai >$100 juta, 2009-2014q1 7
Table 2 – Beberapa indikator kebijakan macroprudential 36
Table 3 – Indikator pengukuran stabilitas sistem keuangan 42
Table 4 – Indikator utama kesehatan finansil ala IMF 45
Table 5 – Indikator tambahan (encouraged) bagi kesehatan finansil ala IMF 45
Table 6 – Indikator parsial dan bobot dalam indeks stabilitas perbankan Republik Ceko 47
Table 7 – Indikator kesehatan finansil ala ECS (Macro-Prudential Indicators) 47
Table 8 – Tiga skenario stabilitas finansil 48
Table 9 – Operasi moneter menurut standing facility 49
Table 10 – Pentingnya likuiditas yang lentur (resilient) 50
Table 11 – Penambahan likuiditas menurut jenis instrumen OPT 50
Table 12 – Penyerapan likuiditas menurut jenis instrumen OPT 50
Table 13 – Nilai ekspor dan impor AS-Cina untuk 5 produk utama, 2014-2015 (US$ juta) 100
Table 14 – Nilai ekspor dan impor AS-Cina untuk produk teknologi tinggi, 2015 (US$ juta) 100
Table 15 – PDB Cina, 2010-2014 dalam milyaran ¥ dan US$ 101
Table 16 – Nilai obligasi pemerintah dan korporasi di Cina, 2002-2015 (US$ milyar) 101
Table 17 – Buletin harga obligasi di pasar uang Hong Kong, 11 Maret 2016 107
Table 18 – Daftar 22 primary dealer di Amerika Serikat, 2014 114
Table 19 – Beberapa veteran primary dealer pilihan Bank Sentral Amerika 114
Table 20 – Daftar 19 primary dealer di Indonesia, 2014-2015 115
Table 21 – Nilai derivatif 25 bank terbesar di AS, Nov. 2015 (US$ milyar) 119
Table 22 – Ringkasan Perlakuan Transaksi Sekuritisasi menurut UK GAAP 145
Table 23 – Jenis data yang digunakan dalam laporan stabilitas finansil beberapa bank sentral (AT-ES) 181
Table 24 – Jenis data yang digunakan dalam laporan stabilitas finansil beberapa bank sentral (GB-TR, ECB, IMF) 182
Table 25 – Variabel yang umum dipakai sebagai ukuran stabilitas finansil 184
Table 26 – Ukuran likuiditas 186
Table 27 – Ukuran utang korporasi di pasar emerging 188
Table 28 – Asumsi dalam skenario gangguan pada pasar aset global 189
Table 29 – Mekanisme transmisi kejutan dalam skenario gangguan pada pasar aset global 190
Table 30 – Asumsi dalam skenario normalisasi yang berhasil 191
Table 31 – Mekanisme transmisi kejutan dalam skenario normalisasi yang berhasil 192
Table 32 – Indikator valuasi risk appetite / aset 193
Table 33 – Indikator ketidakseimbangan non-finansil 194
Table 34 – Indikator kerentanan finansil 195
Table 35 – Indikator Kebijakan Macroprudential 196
Table 36 – Daftar indikator pembentuk ISSK 197
Table 37 – Profil Singkat Cina 199
Table 38 – Indikator Ekonomi Cina, 2011-2017 200
Table 39 – Utang Cina menurut emiten, domestik, nasional, internasional, 2015Q2-2015Q4 202

Daftar Bagan

Figure 1 – Diagram alur hierarki DIKW (Data-Information-Knowledge-Wisdom) 3
Figure 2 – Kontinuum pemahaman dalam konteks DIKW 3
Figure 3 – Proses data mining 4
Figure 4 – Hubungan antara Data, Informasi, dan Intelijen 6
Figure 5 – Analisa eksplorasi data 9
Figure 6 – Taksonomi ketidakpastian 27
Figure 7 – Igloo ketidakpastian 28
Figure 8 – PV perusahaan berutang 32
Figure 9 – Skema indeks kerentanan dan komponennya 37
Figure 10 – Siklus pengawasan macroprudential 38
Figure 11 – Prasyarat bagi antisipasi dan pencegahan ketidakstabilan sistem finansil 39
Figure 12 – Hubungan antara stabilitas sistem finansil dan stabilitas moneter 39
Figure 13 – Keterkaitan antar-variabel dalam BAMBI (Banking Model of Bank Indonesia) 41
Figure 14 – Beberapa indikator pembentuk Indeks Stabilitas Sistem Keuangan (ISSK) 42
Figure 15 – Peran Bank Indonesia dalam menciptakan stabilitas moneter 49
Figure 16 – Bentuk interaksi antara BI, pempus, dan pemda dalam mengendalikan inflasi 51
Figure 17 – Perkembangan aktivitas perbankan internasional 52
Figure 18 – Aset Riel dan Aset Fiktif Bank-bank di AS, 1995–2000 58
Figure 19 – Nilai Derivatif dan Modal 25 Bank AS Ternama (US$ milyar) 59
Figure 20 – CDOs direpresentasikan dalam bentuk building blocks, The Big Short, 2015 60
Figure 21 – Pasar rumah di AS, 1989-2006 61
Figure 22 – Pemetaan proses penularan krisis finansil 2008 62
Figure 23 – Pinjaman sektoral dari Bank of England, 1997-2012 63
Figure 24 – Utang-piutang PIGS 67
Figure 25 – Utang AS ke 4 negara adidaya dan PIGS 68
Figure 26 – Utang Inggris ke 4 negara adidaya dan PIGS 69
Figure 27 – Utang Jerman ke 4 negara adidaya dan PIGS 70
Figure 28 – Utang Perancis ke 4 negara adidaya dan PIGS 71
Figure 29 – Utang Jepang ke 4 negara adidaya dan PIGS 71
Figure 30 – Utang Yunani ke 4 negara adidaya dan PIGS 72
Figure 31 – Utang Irlandia ke 4 negara adidaya dan PIGS 73
Figure 32 – Utang Italia ke 4 negara adidaya dan PIGS 74
Figure 33 – Utang Portugis ke 4 negara adidaya dan PIGS 75
Figure 34 – Utang Spanyol ke 4 negara adidaya dan PIGS 76
Figure 35 – Cadangan Devisa Cina, Des. 1999 – Jan. 2016 78
Figure 36 – Tiga Kekuatan Ekonomi Dunia 79
Figure 37 – Nilai perdagangan Cina dengan negara lain (impor + ekspor) 80
Figure 38 – Nilai tukar bilateral yuan terhadap 3 mata uang dunia, USD, ¥, dan €. 81
Figure 39 – Cadangan devisa Cina dan nilai tukar CNY dan CNH 83
Figure 40 – Selisih CNY dengan CNH, Agustus 2010-Januari 2016 83
Figure 41 – Selisih tajam antara CNY dan CNH berdampak pada lonjakan bunga antar-bank di bulan Januari 2016 84
Figure 42 – Intervensi pasar CNH bisa menyesuaikan bunga CNH dengan CNY, 20151110-20160126 85
Figure 43 – Pasar deposit CNH, Maret 2009 – Des. 2015 86
Figure 44 – Distribusi CNH menurut bank sentral (offshore yuan’s swap line), Nov. 2015 88
Figure 45 – Penyelesaian perdagangan dalam CNH, 2009Q3-2015Q4 89
Figure 46 – Pasar deposit CNH menurut negara, 2014 89
Figure 47 – Beberapa alternatif indikator pertumbuhan ekonomi Cina mengacu pada penurunan yang lebih besar (greater slowdown), 2010–2015 95
Figure 48 – Indeks Saham Gabungan Shanghai (SCI), Mei 2015 sampai 5 Februari 2016 97
Figure 49 – Indeks Saham Gabungan Shanghai, 1 Januari 2015 – 8 Maret 2016 98
Figure 50 – Triple policy trilemma 99
Figure 51 – Pasar obligasi Cina, 2003-2014 104
Figure 52 – Aktivitas perdagangan pasar sekunder obligasi Cina, 2000-2014 104
Figure 53 – Pangsa pasar obligasi Cina menurut jenis obligasi, Des. 2014 104
Figure 54 – Daftar emisi obligasi Panda, 20151010-20160121 106
Figure 55 – Emisi obligasi CNY, 2008-2015 111
Figure 56 – Emisi obligasi CNH, 2008-2015 111
Figure 57 – Asset backed securities di Cina, 2005-2014 112
Figure 58 – Peristiwa bersejarah dan harga minyak mentah, 1861-2014 (US$/b) 121
Figure 59 – Harga minyak mentah Brent (US$), 20040102-20160106 123
Figure 60 – Kelebihan pasokan minyak mentah dunia, 2012q3-2015q3 123
Figure 61 – Distribusi ladang produksi minyak shale AS, April 2015 124
Figure 62 – Suku bunga deposito dan pembiayaan ulang ECB, 2008-Maret 2016 127
Figure 63 – Prediksi nilai tengah suku bunga Federal Funds, Des. 2015-2019 127
Figure 64 – Federal funds target rata (%), 1983-2015 128
Figure 65 – Federal funds rate, 1 Juli 1954-18 Feb. 2016 128
Figure 66 – Skema sumber pendanaan perusahaan 130
Figure 67 – Factors adding to reserves and off balance sheet securities lending program 137
Figure 68 – Multiplikasi Penciptaan Aset Fiktif 143
Figure 69 – Klasifikasi struktur aset, struktur finansil, dan struktur kapital 161


20160320
Sunday, 20 March 2016
10 20160314 Here’s Why Negative Interest Rates Are More Dangerous Than You Think
2016-03-20 10:06 PM
Foxconn Lowering Offer for Japan’s Sharp
Here’s Why Negative Interest Rates Are More Dangerous Than You Think
Charles Kane, March 14, 2016, 1:00 AM EDT

Europe and other parts of the world are in for big risks.

Desperate times call for desperate and somewhat speculative measures. The European Central Bank (ECB) cut its deposit rate last Thursday, pushing it deeper into negative territory. The move is not unprecedented. In 2009, Sweden’s Riksbank was the first central bank to utilize negative interest rates to bolster its economy, with the ECB, Danish National Bank, Swiss National Bank and, this past January, the Bank of Japan, all following suit.

The ECB’s latest move, however, was coupled with the announcement that it would also ramp its Quantitative Easing measures by increasing its monthly bond purchases to 80 billion Euros from 60 billion Euros – a highly aggressive policy shift. The fact that the ECB has adopted this approach raises two key questions: What are the risks? And, if the policy fails, what other options are left?

Negative rates are an attempt by the ECB to prod commercial banks to lend more money to businesses and consumers rather than maintain large balances with the Central Bank. In essence, it is forcing the banks to leverage its balance sheet to a higher level or the ECB will penalize the banks by charging interest on their deposits. Historically, such a practice would be highly inflationary, however, with oil prices falling to record lows combined with a slowdown in global growth, inflation is not feared. In fact, inflation is desired at a manageable level, as this would promote near-term growth in the economic markets.

Read more: Mario Draghi Is Losing His Magic http://fortune.com/2016/03/10/draghi-ecb-euro-qe-rates/

This does not mean, however, that the ECB’s policy does not present risks. First, if the commercial banks decide to pass on the cost of the negative rates to their customers – in other words, they charge customers for keeping their savings in the bank in the same way central banks are now charging the commercial banks for keeping their money – the customers might simply withdraw their savings. In a worst-case scenario, this could create a run on the banks in Europe with customers hoarding their money rather than paying interest on deposits. This would inhibit the free flow of funds through the financial system – ironically, the very reason that negative interest rates were implemented in the first place.

Conversely, if the banks continue to absorb the costs, it could cut deeply into their profits. Even a tenth of a percent on billions of dollars adds up and can mean the difference in profit or loss in a major commercial bank. To date, the effect negative interest rates have had on bank profits have put downward pressure on the majority of bank stocks, which in turn, has depressed the European and global equity markets.

Negative interest rates also have a profound impact on the foreign exchange markets. Interest rate differentials from one currency to another drive the future value of currencies and as the ECB lowers rates into more negative levels, this puts downward pressure on the European Currency Unit (ECU). This may improve near-term EC trade

exports from the region. However, capital flight from the lower interest rate ECU markets to more favorable returns in positive interest rate currencies is inevitable over time. Additionally, the U.S. Fed has clearly stated its intent to raise rates over the next year to eighteen months, thereby making the interest differential gap even greater and thus downward pressure on the ECU even more pronounced.

Read more: Japan’s Negative Interest Rates Are Driving Up Sales of Safes http://fortune.com/2016/03/10/draghi-ecb-euro-qe-rates/

Something has to give and the ECB is painting itself into a corner with very few options left.

The European banks (most vocally, the German banks) are already objecting to current negative interest rate levels; the Euro continues to be negatively pressured by lower rates relative to other currencies due to interest rate differentials; and Quantitive Easing measures, a practice that was shunned by the ECB when the U.S. did its first round of Quantitative Easing in the 2007-2008 timeframe, has been ramped up by the ECB with no apparent material impact on economic growth.

All in all, negative interest rates are not spurring economic growth and are likely to damage the banking sector in Europe if deployed for an extended period. Market stability, tantamount to improving long-term growth prospects, cannot be achieved by testing aggressive and relatively unknown monetary practices such as negative interest rates. Rather, further interest rate adjustments downward by the ECB will seriously hurt the European banking industry – in turn, increasing instability in the European markets. In short, pursuing a negative interest rate policy will most likely hurt economic growth in Europe, not help it.

In the face of continually lowering growth estimates, persistently high unemployment, and a possible Brexit, this is the last thing Europe needs.

Charles Kane is a senior lecturer in international finance and entrepreneurial studies at the MIT Sloan School of Management.


Sunday, 20 March 2016
01 Negative Interest Rate Policy (NIRP)
2016-03-20 09:28 PM
http://www.investopedia.com/terms/n/negative-interest-rate-policy-nirp.asp
Negative Interest Rate Policy (NIRP)

What is a ‘Negative Interest Rate Policy (NIRP)’
A negative interest rate policy (NIRP) is an unconventional monetary policy tool whereby nominal target interest rates are set with a negative value, below the theoretical lower bound of zero percent.

BREAKING DOWN ‘Negative Interest Rate Policy (NIRP)’

During deflationary periods, people and businesses hoard money instead of spending and investing. The result is a collapse in aggregate demand which leads to prices falling even farther, a slowdown or halt in real production and output, and an increase in unemployment. A loose or expansionary monetary policy is usually employed to deal with such economic stagnation. However, if deflationary forces are strong enough, simply cutting the central bank’s interest rate to zero may not be sufficient to stimulate borrowing and lending. (See also: How Interest Rates Can Go Negative.)

A negative interest rate means the central bank and perhaps private banks will charge negative interest: instead of receiving money on deposits, depositors must pay regularly to keep their money with the bank. This is intended to incentivize banks to lend money more freely and businesses and individuals to invest, lend, and spend money rather than pay a fee to keep it safe.
Examples

An example of a negative interest rate policy would be to set the key rate at – 0.2%, such that bank depositors would have to pay two-tenths of a percent on their deposits instead of receiving any sort of positive interest.

The Swiss government ran a de facto negative interest rate regime in the early 1970s to counter its currency appreciation due to investors fleeing inflation in other parts of the world.
In 2009 and 2010 Sweden and in 2012 Denmark used negative interest rates to stem hot money flows into their economies.
In 2014 the European Central Bank (ECB) instituted a negative interest rate that only applied to bank deposits intended to prevent the Eurozone from falling into a deflationary spiral.

Theoretically, targeting interest rates below zero will reduce the costs to borrow for companies and households, driving demand for loans and incentivizing investment and consumer spending. Retail banks may choose to internalize the costs associated with negative interest rates by paying them, which will negatively impact profits, rather than passing the costs to small depositors for fear that otherwise they will move their deposits into cash. (For more, see: Negative Interest Rates and QE: 3 Economic Risks.)

Though fears that bank customers and banks would move all their money holdings into cash (or M1) did not materialize, there is some evidence to suggest that negative interest rates in Europe cut down interbank loans. To stay on top of the latest finance and investing lingo, subscribe to our Term of the Day newsletter.


Sunday, 20 March 2016
02 20131205 Negative Interest Rates
2016-03-20 09:29 PM
http://www.bloombergview.com/quicktake/negative-interest-rates
Negative Interest Rates
Less Than Zero
By Jana Randow and Simon Kennedy
First Published Dec. 5, 2013
Updated Mar 18, 2016 2:56 AM EDT

Imagine a bank that pays negative interest. Depositors are actually charged to keep their money in an account. Crazy as it sounds, several of Europe’s central banks have cut key interest rates below zero and kept them there for more than a year. Now Japan is trying it, too. For some, it’s a bid to reinvigorate an economy with other options exhausted.
Others want to push foreigners to move their money somewhere else. Either way, it’s an unorthodox choice that has distorted financial markets and triggered warnings that the strategy could backfire. If negative interest rates work, however, they may mark the start of a new era for the world’s central banks.

The Situation

The Bank of Japan surprised markets by adopting negative interest rates in January, more than a year and a half after the European Central Bank became the first major institution of its kind to venture below zero. With other options to stimulate the economy limited, more policy makers are willing to test the technique. They acknowledge that sub-zero rates can crimp the ability of banks to make money or lead them to take additional risks in search of profit. The ECB cut rates again March 10, charging banks 0.4 percent to hold their cash overnight. At the same time, it offered a premium to banks that borrow in order to extend more loans. Sweden also has negative rates, Denmark is using them to protect its currency’s peg to the euro and last year Switzerland moved its deposit rate below zero for the first time since the 1970s. Janet Yellen, the U.S. Federal Reserve chair, said in November that a change in economic circumstances could put negative rates “on the table” in the U.S. Since central banks provide a benchmark for all borrowing costs, negative rates spread to a range of fixed-income securities. By February, more than $7 trillion of government bonds worldwide offered yields below zero. That means investors buying bonds and holding to maturity won’t get all their money back. While most banks have been reluctant to pass on negative rates for fear of losing customers, a few began to charge large depositors.


Source: Bloomberg

The Background

Negative interest rates are an act of desperation, a signal that traditional policy options have proved ineffective and new limits need to be explored. They punish banks that hoard cash instead of extending loans to businesses or to weaker lenders. Rates below zero have never been used before in an economy as large as the euro area. While it’s still too early to tell if they will work, ECB President Mario Draghi said in January 2016 that there are “no limits” on what he will do to meet his mandate. Europe’s central bank chose to experiment with negative rates before turning to a bond-buying program like those used in the U.S. and Japan. Policy makers in both Europe and Japan are trying to prevent a slide back into deflation, or a spiral of falling prices that could derail the economic recovery. The euro zone is also grappling with a shortage of credit and unemployment is only slowly receding from its highest level since the currency bloc was formed in 1999.


Source: European Central Bank

The Argument

In theory, interest rates below zero should reduce borrowing costs for companies and households, driving demand for loans. In practice, there’s a risk that the policy might do more harm than good. If banks make more customers pay to hold their money, cash may go under the mattress instead, robbing lenders of a crucial source of funding. But there’s mounting concern that when banks absorb the cost of negative rates themselves, that squeezes the profit margin between their lending and deposit rates, and might make them even less willing to lend. The Bank for International Settlements warned in a March 2016 report of “great uncertainty” if rates stay negative for a prolonged period. And if more and more central banks use negative rates as a stimulus tool, there’s concern the policy might ultimately lead to a currency war of competitive devaluations.

The Reference Shelf
A Bloomberg comic explains how negative interest rates aim to put money to work.
The Bank for International Settlements published a March 2016 report on negative rates.
An analysis of the impact of negative rates in 2015 from Sweden’s central bank.
Blog posts from Francesco Papadia, a former director general for market operations at the ECB, on whether the central bank should have negative rates, and a discussion about where rates could go.
A speech by Benoit Coeure, a member of the ECB Executive Board, on monetary policy and the challenges of the zero lower bound.
A Bloomberg News article outlining the pros and cons of a deposit rate of zero or below and a QuickTake on the ECB’s debate over quantitative easing.
An ECB research paper on non-standard monetary policy and a Bank of England study of negative rates.

To receive a free monthly QuickTake newsletter, sign up at http://www.bloombergbriefs.com/quicktake

To contact the writers of this QuickTake:
Jana Randow in Washington at jrandow@bloomberg.net
Simon Kennedy in London at skennedy4@bloomberg.net

To contact the editor responsible for this QuickTake:
Leah Harrison Singer at lharrison@bloomberg.net

unorthodox http://www.businessweek.com/articles/2013-11-18/larry-summers-has-a-wintry-outlook-on-the-economy
distorted https://medium.com/bull-market/apple-just-proved-that-the-zero-lower-bound-still-exists-4f5402b97e43
new era http://www.bloomberg.com/news/articles/2015-11-11/negative-interest-rates-the-new-normal-next-time-economies-slump
surprised http://www.bloomberg.com/news/articles/2016-01-29/yen-tumbles-more-than-2-as-boj-adopts-negative-interest-rates
adopting http://www.bloomberg.com/news/articles/2016-01-29/bank-of-japan-adopts-negative-interest-rates-by-vote-of-5-4
crimp http://www.bloomberg.com/news/articles/2016-03-09/draghi-has-banking-chiefs-bemoaning-ecb-s-negative-rate-push
additional risks http://www.bloomberg.com/news/articles/2016-03-02/ubs-s-ermotti-says-negative-rates-may-encourage-risky-lending
charging banks http://www.bloomberg.com/news/articles/2016-03-10/draghi-sees-ecb-done-for-now-on-rates-with-kitchen-sink-stimulus
Denmark http://www.bloomberg.com/news/articles/2015-02-11/fx-speculators-seen-driving-denmark-to-test-world-s-lowest-rate
Switzerland http://www.bloomberg.com/news/articles/2014-12-18/snb-starts-negative-interest-rate-of-0-25-to-stave-off-inflows
on the table http://www.bloomberg.com/news/articles/2015-11-04/yellen-signals-solid-economy-would-lead-to-december-rate-hike
benchmark http://www.bloombergview.com/articles/2015-02-24/metal-manipulation-and-negative-rates
range of fixed-income securities http://www.bloombergview.com/articles/2015-02-13/money-for-nothing-and-company-cash-for-free
more than $7 trillion http://www.bloomberg.com/news/articles/2016-02-09/world-s-negative-yielding-bond-pile-tops-7-trillion-chart
reluctant http://www.bloomberg.com/news/articles/2015-01-28/nordea-bank-may-charge-clients-for-deposits-amid-negative-rates
a few http://www.bloomberg.com/news/articles/2015-02-26/julius-baer-charges-institutional-clients-for-snb-negative-rate
desperation http://www.bloomberg.com/news/articles/2015-10-22/the-great-negative-rates-experiment
proved ineffective http://www.bloomberg.com/bw/articles/2013-11-18/larry-summers-has-a-wintry-outlook-on-the-economy
extending http://www.bloomberg.com/news/2013-11-07/the-european-bank-s-underwhelming-surprise.html
will http://research.nordeamarkets.com/en/2013/12/04/euro-area-viewpoint-qa-on-negative-ecb-deposit-rate/
no limits http://www.bloomberg.com/news/articles/2016-01-21/draghi-says-ecb-may-ramp-up-stimulus-in-march-on-global-risks
unemployment http://www.bloomberg.com/news/2013-11-29/euro-area-unemployment-unexpectedly-drops-amid-recovery.html
theory http://www.economist.com/blogs/economist-explains/2015/02/economist-explains-15
risk http://www.bloomberg.com/news/2013-11-15/yellen-sees-chance-fed-could-cut-rate-it-pays-banks-on-reserves.html
cash http://www.bankofengland.co.uk/publications/Documents/other/treasurycommittee/ir/tsc160513.pdf
profit margin http://www.bloomberg.com/news/articles/2015-02-10/ubs-doubles-dividend-as-fourth-quarter-profit-beats-estimates
report https://www.bis.org/publ/qtrpdf/r_qt1603e.htm
concern http://www.bloomberg.com/news/articles/2016-02-26/carney-warns-g-20-against-zero-sum-game-of-negative-rates
currency war http://www.bloombergview.com/quicktake/currency-wars
explains http://www.bloomberg.com/graphics/2016-central-banks/#1
report https://www.bis.org/publ/qtrpdf/r_qt1603e.htm
https://www.bis.org/publ/qtrpdf/r_qt1603e.pdf
analysis http://www.riksbank.se/Documents/Rapporter/Ekonomiska_kommentarer/2015/rap_ek_kom_nr11_150929_eng.pdf
should have negative rates http://moneymatters-monetarypolicy.blogspot.de/2013/11/should-ecb-go-negative.html
where rates could go http://moneymatters-monetarypolicy.blogspot.de/2014/05/where-could-ecb-interest-rates-go.html#more
speech http://www.ecb.europa.eu/press/key/date/2012/html/sp120219.en.html
pros and cons http://www.bloomberg.com/news/2012-06-26/draghi-may-enter-twilight-zone-where-bernanke-fears-to-tread.html
QuickTake http://www.bloomberg.com/quicktake/europes-qe-quandry/
non-standard http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1528.pdf
study http://www.bankofengland.co.uk/publications/Documents/other/treasurycommittee/ir/tsc160513.pdf

Japan 10-Year Yield Drops to Record, Below Negative Deposit Rate http://www.bloomberg.com/news/articles/2016-03-18/japan-10-year-yield-drops-to-record-below-negative-deposit-rate
Draghi Sees ECB Done for Now on Rates With Kitchen-Sink Stimulus http://www.bloomberg.com/news/articles/2016-03-10/draghi-sees-ecb-done-for-now-on-rates-with-kitchen-sink-stimulus
Draghi Has Banking Chiefs Bemoaning ECB’s Negative-Rate Push http://www.bloomberg.com/news/articles/2016-03-09/draghi-has-banking-chiefs-bemoaning-ecb-s-negative-rate-push
The $5 Trillion Quandary as Negative-Yielding Japan Debt Doubles http://www.bloomberg.com/news/articles/2016-03-07/the-5-trillion-quandary-as-negative-yielding-japan-debt-doubles
Negative Interest Rates Are Working Just Fine So Far, BIS Shows http://www.bloomberg.com/news/articles/2016-03-06/negative-interest-rates-are-working-just-fine-so-far-bis-shows


Sunday, 20 March 2016
02a 20160306 Negative Interest Rates Are Working Just Fine So Far: BIS
2016-03-20 09:42 PM
http://www.bloomberg.com/news/articles/2016-03-06/negative-interest-rates-are-working-just-fine-so-far-bis-shows
Negative Interest Rates Are Working Just Fine So Far: BIS
Jeff Black Jeffrey_Black
March 6, 2016 – 6:00 AM EST

* Study finds few negative effects on money markets or cash use
* Pass-through of mildly negative rates similar to normal rates

Negative interest-rate policies currently in use by central banks around the world have worked through their respective systems in much the same way as positive rates, though it’s not known how far below zero that would continue to be the case, the Bank for International Settlements said.

In its quarterly report published Sunday, the Basel-based “central bank for central banks” said that “so far, zero has not proved to be a technically binding lower limit for central bank policy rates.”

“Nonetheless, there is great uncertainty about the behavior of individuals and institutions if rates were to decline further into negative territory or remain negative for a prolonged period,” it said. “It is unknown whether the transmission mechanisms will continue to operate as in the past and not be subject to ‘tipping points.”‘

QuickTake Negative Interest Rates

The BIS’s verdict on negative rates gives backing to the European Central Bank, the Bank of Japan and others at a time when such unconventional methods are facing increasing criticism for their potential impact on the financial industry and currency markets. A sell-off in European bank stocks this year was partly driven by fears that further rate cuts by the ECB would damage profitability in a sector still recovering from the debt crisis.
Policy Transmission

“The experience so far suggests that modestly negative policy rates are transmitted to money-market rates in very much the same way as positive rates are,” report authors Morten Bech and Aytek Malkhozov said. “Anecdotal evidence suggests banks seek to avoid negative rates by either extending maturities or lending to riskier counterparties.”

The report also presented calculations of the average effective rate that banks pay on cash above the minimum requirements or exemptions at the ECB, the Swiss National Bank, the Riksbank and the Danish central bank, showing that a lower negative policy rate doesn’t necessarily translate into a more expensive proposition for lenders.

For example, while Switzerland’s central bank has the lowest policy rate at minus 75 basis points, the exemption of some deposits means that the average rate is only minus 27 basis points.

Fears that interest rates below zero would prompt banks or the public to withdraw and hoard cash rather than pay penalties so far haven’t materialized in any jurisdiction, according to the report. This is partly due to banks’ “reluctance to pass negative rates through to retail depositors,” with the exception of Switzerland, where some lenders actually increased mortgage rates to mitigate some of the costs incurred at the central bank.

“The Swiss experience points to a fundamental policy tension if the intention of negative policy rates is to transmit negative interest rates to the wider economy,” the BIS said. “If negative policy rates do not feed into lending rates for households and firms, they largely lose their rationale. On the other hand, if negative policy rates are transmitted to lending rates for firms and households, then there will be knock-on effects on bank profitability.”


Sunday, 20 March 2016
02b 20160306 How have central banks implemented negative policy rates?
2016-03-20 09:43 PM
https://www.bis.org/publ/qtrpdf/r_qt1603e.htm
How have central banks implemented negative policy rates?
by Morten Linnemann Bech and Aytek Malkhozov
6 March 2016

Since mid-2014, four central banks in Europe have moved their policy rates into negative territory. These unconventional moves were by and large implemented within existing operational frameworks. Yet the modalities of implementation have important implications for the costs of holding central bank reserves. The experience so far suggests that modestly negative policy rates transmit through to money markets and other interest rates for the most part in the same way that positive rates do. A key exception is retail deposit rates, which have remained insulated so far, and some mortgage rates, which have perversely increased. Looking ahead, there is great uncertainty about the behaviour of individuals and institutions if rates were to decline further into negative territory or remain negative for a prolonged period.1

JEL classification: E42, E58, G21, G23.

With policy rates close to zero in the aftermath of the Great Financial Crisis, several central banks around the world have introduced unconventional policies to provide additional monetary stimulus. One example is the decision by five central banks – Danmarks Nationalbank (DN), the European Central Bank (ECB), Sveriges Riksbank, the Swiss National Bank (SNB) and most recently the Bank of Japan (BoJ) – to move their policy rates below zero, traditionally seen as the lower bound for nominal interest rates. The motivations behind the decisions differed somewhat across jurisdictions, leading to differences in policy implementation.

This feature reviews the experience of the four central banks in Europe that have kept their policy rates below zero for more than one year, focusing exclusively on the technical aspects of the implementation of negative policy rates, their impact on the money market and their transmission to other interest rates. The feature does not address the broader question of whether negative rates are desirable as a policy strategy, as this would call for a broader analysis of their impact on the financial system and the macroeconomy. For instance, more recently their debilitating impact on banks’ resilience through undermined profitability, coming on the heels of persistently ultra-low interest rates, has emerged as an important constraining factor.

The remainder of the feature is organised as follows. The first section describes the economic context for the introduction of negative policy rates, while the second looks at their technical implementation. The third section assesses the transmission of negative policy rates to money markets and other interest rates. The penultimate section takes stock of the factors that determine the lower bound for nominal interest rates. In concluding, the feature highlights a number of potential risks associated with using negative policy rates going forward.
Context for negative policy rates

While the ECB, SNB, DN and Riksbank all introduced negative interest rates in mid-2014 and early 2015 (Box 1), and all faced a challenging macroeconomic environment, their respective motivations differed somewhat. In some cases the central banks’ declared objective was to counter a subdued inflation outlook, while in others they focused on currency appreciation pressures in the context of bilateral pegs or floors on their exchange rates.

The ECB moved its deposit rate into negative territory in mid-2014 to “underpin the firm anchoring of medium to long-term inflation expectations” (Draghi (2014)). Similar concerns led the Riksbank to implement negative interest rates starting in the first quarter of 2015 (Graph 1, left-hand panel). The aim was “safeguarding the role of the inflation target as a nominal anchor for price setting and wage formation” (Sveriges Riksbank (2015)). Negative interest rates in both cases complemented other unconventional measures. The ECB resumed its purchases of covered bonds and expanded its asset purchase programme to include government bonds and asset-backed securities. It also provided additional term funding to banks through targeted longer-term refinancing operations (TLTROs). The Riksbank began bond purchases that by mid-2016 are set to cover just over 30% of outstanding nominal government bonds, a proportion somewhat larger than the ECB’s programme.2

The euro area’s new wave of monetary easing added to the appreciation pressure on the Swiss franc, which in 2011 had led the SNB to impose a floor vis-à-vis the euro. To stem the inflow of funds (Graph 1, right-hand panel) and maintain the floor, the SNB announced the introduction of negative interest rates (-0.25%) on sight deposit account balances in December 2014 (effective 22 January 2015). In mid-January, with pressure on the franc unabated, the SNB discontinued the minimum exchange rate and lowered the interest rate on sight deposit accounts further to -0.75%. The goal was to discourage capital inflows and thereby counter the monetary tightening due to the Swiss franc’s appreciation. Still, pressure on the currency persisted and the SNB continued to accumulate foreign exchange reserves into the second half of 2015.

Following the SNB decision, DN, which maintains a nearly fixed exchange rate vis-à-vis the euro, saw a surge in demand for Danish kroner and intervened heavily in the FX market (Graph 1, right-hand panel). Moreover, the central bank cut the key monetary policy interest rate from just below zero to -0.75% in early 2015.3 These measures stabilised the krone, and, towards the end of February 2015, the inflow of funds ceased. Over the course of 2015, the situation gradually normalised, and DN sold part of the foreign exchange it had acquired back into the market. In January 2016, DN raised the key policy rate to -0.65%, thus narrowing the policy rate spread vis-à-vis the euro area.
Context for negative interest rates
Technical implementation of negative policy rates

The implementation of negative policy rates took place by and large within existing operational frameworks. The SNB had to change its terms of business to implement negative policy rates. Prior to December 2014, remuneration of reserves (positive or negative) was not part of the contractual framework for sight deposit accounts. Moreover, the SNB put in place individual exemption thresholds for sight deposit accounts so that only reserve holdings above the threshold earn negative interest (Box 2).

Even though wholesale changes were not needed at the other central banks, substantial “behind-the-scenes” work took place in every jurisdiction. Each central bank conducted an in-depth review of its IT systems as well as of its documentation and account rules. And several minor adjustments were made. Moreover, the central banks carefully signalled the possibility of negative interest ahead of time in order to prepare both financial institutions and the public at large.

Implementation modalities beyond the negative policy rates themselves have important implications for the costs to banks of holding central bank liabilities. In each case, the marginal remuneration of an additional unit of reserves differs from the average remuneration rate.

Box 1
Moving into negative territory

Danmarks Nationalbank (DN), the European Central Bank (ECB), Sveriges Riksbank and the Swiss National Bank (SNB) all cut their key policy rates to below zero over the period from mid-2014 to early 2015 (Graph A, left-hand panel). The ECB moved first, on 11 June 2014, when it cut the deposit rate to -10 basis points after having signalled the possibility for at least a year. DN followed on 5 September 2014, when the rate on certificates of deposit was cut from +5 to -5 bp following a further rate cut by the ECB. The SNB went negative on 18 December 2014 when it announced that sight deposits exceeding a certain threshold would earn -25 bp effective 22 January 2015. The Riksbank cut its repo rate to -10 bp on 18 February 2015, whereas the Bank of Japan announced on 29 January 2016 that it would apply a rate of -10 bp to part of the balances in current accounts.

In Europe, central banks took more than one step into negative territory. The ECB lowered its deposit rate to -20 bp in September 2014 and further to -30 bp in December 2015, while the SNB announced a further 50 bp cut on 15 January 2015 in connection with the discontinuation of the minimum exchange rate vis-à-vis the euro. Appreciation pressure on the Danish krone led to four successive rate cuts over a period of two and half weeks that took DN to -75 bp in early February 2015. A reversal of the pressure on the krone led to an increase to -65 bp in early 2016. For its part, the Riksbank cut to -25 bp in March 2015, and further to -35 bp in July and -50 bp in February 2016.

However, negative policy rates were not entirely new. The Riksbank had flirted with negative policy rates in 2009-10 (Graph A, right-hand panel). The repo rate was cut to 25 bp on 8 July 2009 and the overnight deposit rate was lowered to -25 bp in order to keep the interest rate corridor symmetrical at +/-50 bp. Still, the amount of funds on deposit overnight was minuscule, as the Riksbank typically uses daily fine-tuning operations (at 10 bp below the repo rate) to drain most excess liquidity prior to the close of business. DN had maintained negative certificate of deposit rates from mid-2012 to April 2014.
Central bank policy rates

Box 2
Design of remuneration schedules

In general, the four central banks are applying negative rates to the majority of accounts on their books with a view to limiting the potential for arbitrage between accounts.icon

The ECB, DN and SNB use some combination of exemption thresholds in computing the negative remuneration. The design and calibration of the remuneration schedules reflect a combination of the policy goals and the existing implementation frameworks. The SNB’s exemption thresholds are determined in one of two ways. The first approach applies to all banks that have to fulfil minimum reserve requirements. This exemption threshold currently corresponds to 20 times the minimum reserve requirement prior to implementation (a static component) minus/plus any increase/decrease in the amount of cash held (a dynamic component). The dynamic component aims to prevent account holders from substituting cash for sight deposits. The second approach defines a fixed exemption threshold for all account holders not subject to the minimum reserve requirement. The minimum fixed threshold is CHF 10 million, a level chosen so as not to inhibit an institution’s ability to settle Swiss franc payments.

While new for the SNB, tiered remuneration was already part of the operational framework at the other three central banks. In the Eurosystem, required reserves earn the Main Refinancing Operations (MRO) rate – currently at 5 basis points – whereas excess reserves currently “earn” -30 bp. In Denmark, the central bank offers one-week certificates of deposit funds with a yield currently at -65 bp. In contrast, overnight demand deposits in the current account earn zero. Both an aggregate limit and individual limits have been set on the amount of funds that can be held in the current accounts. If the aggregate limit is exceeded at the end of the day, then deposits exceeding the individual limits are converted into certificates of deposit. In addition to interest rates, DN has actively varied the current account limits – most recently increasing them in March 2015, and then lowering them in August 2015 and January 2016.

In Sweden, the Riksbank currently issues one-week debt certificates. Moreover, daily fine-tuning operations aim to drain any remaining reserves prior to the close of business, and hence banks hold only small amounts as overnight deposits with the central bank. At the moment, one-week debt certificates “yield” -50 bp and fine-tuning operations earn -60 bp, while any residual amounts left in the current account face a negative “remuneration” of -125 bp.

With the move below zero, the Bank of Japan adopted a remuneration schedule that will divide balances in the current accounts of financial institutions into three tiers. The three tiers are remunerated at +10 bp, 0 bp and -10 bp, respectively.

icon For government deposits, the treatment varies. In Switzerland, the sight deposits of the Federal Administration are exempt but balances are being monitored. In Denmark, government deposits earn negative interest only above a certain threshold; whereas in the euro area, government accounts are de facto subject to negative rates due to de minimis exemptions. In Sweden, the Riksbank has not been the government’s bank since 1994.

The structure of liabilities and of their remuneration differs across central banks. In each jurisdiction, the banking system currently holds reserves and other central bank liabilities above required amounts (“liquidity surplus”). In the euro area and Switzerland the liquidity surplus is held as overnight deposits (reserves), whereas in Denmark and Sweden the central banks use a combination of overnight and one-week liabilities. In addition, the ECB, DN and SNB all exempt at least part of the reserve holdings from negative interest rates (Box 2).

As illustrated in Table 1 and Graph 2 (left-hand panel), the average remuneration rate on central banks’ liabilities depends not only on the different policy rates, but also on the exemption thresholds. In mid-February 2016, the average rates were lowest at the Danish and Swedish central banks at just above – 50 basis points. In comparison, the average rates at the SNB and ECB were around – 25 basis points. Thus, the average remuneration was not necessarily the lowest in the jurisdictions with the most negative policy rates.
Central bank remuneration schedules (mid-February 2016)
Remuneration of central bank liabilities

Since going negative, the spread between marginal and average costs ranged from -11 to -47 basis points in Denmark, as the central bank actively adjusted its policy stance by varying the exemption thresholds. In contrast, the spread was mostly constant for the other three central banks (Graph 2, right-hand panel). For Switzerland, the spread has been around -50 basis points, whereas it was approximately -5 and -8 basis points for the ECB and the Riksbank, respectively.
Market functioning

The experience so far suggests that modestly negative policy rates are transmitted to money market rates in very much the same way as positive rates are. However, questions remain as to whether negative policy rates are transmitted to the wider economy through lower lending rates for firms and households, especially in rates associated with bank intermediation. Institutional and contractual constraints may create a discontinuity at the zero rate and impede the pass-through beyond money markets. Before addressing these broader issues of efficacy, we first examine the transmission of negative policy rates to the money markets.
Money markets

Overall, so far the introduction of modestly negative policy rates does not appear to have affected the functioning of money markets much. The pass-through to short-term money market rates has persisted, and the impact on trading volumes, which are already very low because of the abundant and cheap supply of reserves by central banks, appears in general to have been small.

In all four jurisdictions, the overnight rate has followed the policy rate below zero. Moreover, the negative policy rates have passed through to other money market rates (Graph 3).

In the euro area and Switzerland, money market rates track the central bank deposit rate. In Sweden, money market rates closely follow the repo rate. In Denmark, the relationship has been somewhat less tight. On some days the tomorrow-next rate is close to the current account rate of zero, whereas on other days it is closer to (or even below) the certificate of deposit rate. This volatility results from a thin market, where on some days pricing can be driven by banks whose reserve holdings do not exceed their limit and earn a higher current account rate (Andersen et al (2015)).

In terms of money market volumes, experiences vary. In the euro area, money market volumes were stable after the ECB’s deposit rate went negative in mid-2014. However, volumes have dropped across all maturities as excess liquidity in the banking system has increased. Anecdotal evidence suggests that banks seek to avoid negative rates by either extending maturities or lending to riskier counterparties. While negative rates may have improved market access for banks in the periphery countries of the euro area, other explanations for increased access are also possible – not least the introduction of the Single Supervisory Mechanism, its efforts to improve the health of balance sheets, and stronger economic and financial conditions. In Denmark, the turnover in the (unsecured) money market has declined since the introduction of negative interest rates. This decrease reflects, in part, the higher amounts that banks were allowed to deposit “on demand” in their current accounts.
Key policy and money market rates

In contrast, trading in the Swiss (secured) money market has increased moderately. This increase in activity is a mechanical effect of the new individual exemption thresholds, as banks reshuffle reserves among themselves. Banks that hold levels of reserves below their exemption threshold are willing to borrow reserves up to that threshold, whereas those that hold levels of reserves above theirs are keen to lend. At the outset the exemption thresholds were not fully exploited, but over time a redistribution of reserves has taken place and this has led to a decrease in the non-exploited exemption thresholds. Most of this “reshuffling” is overnight.

Problems with money market instruments designed with only positive interest rates in mind have so far not materialised. For example, there is no evidence that repo market counterparties have strategically failed to deliver collateral to delay receiving cash.4 And constant net asset value (NAV) money market funds in the euro area designed contractual provisions that work around NAV falling below 1 because of the simple pass-through of negative money market rates.5 The returns on these funds remained positive throughout the first half of 2015 as they lengthened the maturity in search of higher yields, but became systematically negative by the end of the year. A further shift from constant to variable NAV may be possible.
Transmission beyond money markets

The initial introduction of negative policy rates coincided with a decrease in longer-maturity and higher-risk yields, although simultaneous central bank asset purchase programmes and other factors behind the fluctuations in the risk premium make it difficult to isolate the effect of negative policy rates alone (Graph 4). In terms of operational matters, market participants initially faced some uncertainty related to how negative rates would be treated in connection with outstanding securities or existing contract types. A particular concern was the treatment of negative coupons in floating rate instruments and the ability for market infrastructures to accommodate negative interest rates.

In Switzerland, banks and other financial institutions, in general, adjusted their terms of business or financial contracts prior to the implementation of negative policy rates by, for example, introducing a zero lower bound on Libor-based mortgages. In Denmark, government-led working groups had to clarify both the tax treatment and the mechanics of dealing with negative mortgage bond coupons.6 In Sweden, elements of the clearing and settlement system were not designed to deal with negative coupon payments and had to be modified.

These technical issues have for the most part been resolved, and instances of market operational issues have been limited. In part, this is because, once spreads over the contractual reference rates are added, the resulting interest rates are less likely to be negative at current modestly negative policy rates. Nonetheless, new market practices can vary across individual banks and legal jurisdictions, including within the euro area, creating a risk of market segmentation.

Initially, there was some uncertainty as to how banks would treat their “wholesale” depositors, but they are now passing on the costs in the form of negative wholesale deposit rates. In some cases, banks have used exemption thresholds akin to those that central banks have applied to their reserves.

The key exception in terms of transmission has been banks’ reluctance to pass negative rates through to retail depositors. This reaction was motivated by the concern, shared by some central banks, that negative deposit rates would lead to substantial deposit withdrawals. In Switzerland, banks have responded to lower lending margins in some business lines by adjusting other selected lending rates upwards. In particular, Swiss banks have raised the lending rate on mortgages, even as government and corporate bond yields fell in line with the money market rates (Graph 4, bottom left-hand panel).7
Pass-through beyond money markets

The Swiss experience points to a fundamental policy tension if the intention of negative policy rates is to transmit negative interest rates to the wider economy. If negative policy rates do not feed into lending rates for households and firms, they largely lose their rationale. On the other hand, if negative policy rates are transmitted to lending rates for firms and households, then there will be knock-on effects on bank profitability unless negative rates are also imposed on deposits, raising questions as to the stability of the retail deposit base. In either case, the viability of banks’ business model as financial intermediaries may be brought into question. The dilemma is less acute if the objective is to influence the exchange rate. In this case, however, other thorny issues arise, not least that of cross-border spillovers.

Institutional constraints may also create a demand for instruments with interest payments floored at zero. Investors, notably insurers, may be unwilling or unable to buy negative cash flow securities, and banks issuing covered bonds have often included an interest floor at zero in the documentation or assumed one implicitly. Such floors can weaken the link between the cash flows of floating rate loans, bonds issued by banks to finance them, and the interest rate swaps that are used to hedge the associated exposures and pass through negative interest payments. The resulting hedging difficulties have led to an increase in the demand for new instruments – for example, Euribor options with 0% strikes that cover the residual risk arising from the floor.
Technically, where is the effective lower bound?

Some other central banks close to the zero bound have adopted or have been considering negative policy rates. At the end of January 2016, the Bank of Japan announced that, “in order to achieve the price stability target of 2 percent at the earliest possible time” (Bank of Japan (2016)), remuneration of -0.10% would apply to any future increases in reserves.8 In December 2015, the Bank of Canada made an explicit reference to this possibility and changed its estimate of the lower bound for its policy rate from 0.25% to -0.50% (Bank of Canada (2015)). Still, questions regarding the specific implementation and the technically effective lower bound remain open.

The possibility of earning zero nominal interest by storing value in physical currency is the primary motivation for the concept of the zero lower bound in the academic literature.9 So far, negative policy rates have not led to an abnormal jump in the demand for cash across the four European jurisdictions under review (Graph 5), although this may be due to that fact that retail depositors have been shielded from negative rates so far. In the case of Denmark, the euro area and Switzerland, cash demand had already been on an increasing trend, in part because rates were already very low. Given transport, storage, insurance and other costs associated with holding cash in size, the effective lower bound on nominal interest rates is somewhere below zero.

The effective lower bound is, however, likely to move up if interest rates remain, or are expected to remain, negative for a long time. Agents may start adapting to the new environment and begin to innovate with a view to reducing the costs associated with physical currency use (eg McAndrews (2015)). Moreover, some of the costs of increasing cash usage are fixed, and incurring those may become profitable if interest rates are expected to remain negative for long.

As alluded to above, the fact that retail bank customers have so far been shielded from negative rates has probably played a key role in keeping the demand for cash stable. The ability of the banking sector to limit the pass-through of negative rates is thus an important factor determining the effective lower bound (Alsterlind et al (2015)). Central banks’ efforts to limit the cost of negative remuneration on the banking system were in some cases aimed at maintaining this ability. Other institutional factors, such the prevalence of adjustable rate mortgages and more generally floating rate debt, can broaden agents’ exposure to negative rates and affect the technical room central banks have to move interest rates into negative territory.
Banknotes and coins in circulation
Conclusions

The introduction of moderately negative policy rates by the four central banks under review was by and large achieved within their existing operational frameworks. The experience so far suggests that modestly negative policy rates are transmitted through to money market rates in much the same way as positive rates are. It also appears that they are transmitted to longer-maturity and higher-risk rates, although this assessment is clouded by the impact of complementary monetary policy measures. By contrast, so far retail deposit rates have remained insulated, partly by design. And, at least in Switzerland, negative rates have actually raised, rather than lowered, mortgage rates.

So far, zero has not proved to be a technically binding lower limit for central bank policy rates. Nonetheless, there is great uncertainty about the behaviour of individuals and institutions if rates were to decline further into negative territory or remain negative for a prolonged period. It is unknown whether the transmission mechanisms will continue to operate as in the past and not be subject to “tipping points”. Furthermore, an extended period of negative interest rates has so far been limited to the euro area and neighbouring economies. It is not clear how negative policy rates would play out in other institutional settings.

This special feature has examined exclusively the technical aspects of the implementation of negative policy rates. It has not addressed the question of the impact of negative policy rates on the financial system as a whole. Many questions remain. For instance, more recently, the debilitating impact of persistently negative interest rates on the profitability of the banking sector has emerged as an important consideration (BIS (2016)). Even more directly, such rates can weaken the profitability and/or soundness of institutions with long-duration liabilities, such as insurance companies and pension funds, seriously challenging their business models.10 And an assessment of their desirability would necessarily require an evaluation of their effectiveness in achieving the central bank objectives as well as their more general impact on financial and macroeconomic stability.11 This, however, is beyond the scope of this special feature.12
References

Alsterlind, J, H Armelius, D Forsman, B Jönsson and A-L Wretman (2015): “How far can the repo rate be cut?”, Sveriges Riksbank, Economic Commentaries, no 11.

Andersen, M, M Kristoffersen and L Risbjerg (2015): “The money market at pressure on the Danish krone and negative interest rates”, Danmarks Nationalbank, Monetary Review, 4th Quarter.

Bank of Canada (2015): “Bank of Canada updates framework for unconventional monetary policy measures”, press release, 8 December.

Bank for International Settlements (2015): 85th Annual Report, June.

— (2016): “Uneasy calm gives way to turbulence”, BIS Quarterly Review, March, pp 1-14.

Bank of Japan (2016): “Introduction of ‘quantitative and qualitative monetary easing with a negative interest rate'”, press release, 29 January.

Borio, C (2015): “Revisiting three intellectual pillars of monetary policy received wisdom”, speech at the Cato Institute, 12 November, forthcoming in the Cato Journal.

Borio, C, L Gambacorta and B Hofmann (2015): “The influence of monetary policy on bank profitability”, BIS Working Papers, no 514, October.

Caruana, J (2016): “Persistent ultra-low interest rates: the challenges ahead”, speech at the Bank of France-BIS Farewell Symposium for Christian Noyer, Paris, 12 January.

Committee on the Global Financial System (2011): “Fixed income strategies of insurance companies and pension funds”, CGFS Papers, no 44, July.

Domanski, D, H S Shin and V Sushko (2015): “The hunt for duration: not waving but drowning?”, BIS Working Papers, no 519, October.

Draghi, M (2014): “Introductory statement to the press conference”, 4 December.

Fleming, M and K Garbade (2004): “Repurchase agreements with negative interest rates”, Federal Reserve Bank of New York, Current Issues in Economics and Finance, vol 10, no 5, April.

Friedman, M (1969): The optimum quantity of money, Macmillan.

Hicks, J (1937): “Mr Keynes and the ‘Classics’; a suggested interpretation”, Econometrica, vol 5, no 2, April.

McAndrews, J (2015): “Negative nominal central bank policy rates – where is the lower bound?”, Federal Reserve Bank of New York, speech at the University of Wisconsin, 8 May.

Rognlie, M (2015): “What lower bound? Monetary policy with negative interest rates”, working paper, 23 November.

Sveriges Riksbank (2015): “Riksbank cuts repo rate to -0.25 per cent and buys government bonds for SEK 30 billion”, press release, 18 March.

Working Group on Negative Mortgage Rates (2015): “Negative mortgage rates”, Danish Ministry of Business and Growth report.

1 The authors would like to thank Meredith Beechey Österholm, Matthias Jüttner, Benjamin Müller, Holger Neuhaus, Frank Nielsen and Marcel Zimmermann for valuable discussions, and Claudio Borio, Ben Cohen (the editor) and Dietrich Domanski for comments. The views expressed are those of the authors and do not necessarily reflect those of the Bank for International Settlements (BIS) or the Markets Committee.

2 While the Riksbank has no exchange rate operational target, it has stated that it is prepared to intervene on the foreign exchange market if the krona’s appreciation threatens price stability. On 4 January 2016, its executive board took a delegation decision enabling immediate intervention on the foreign exchange market as a complementary monetary policy measure.

3 On the recommendation of Danmarks Nationalbank, the Ministry of Finance also temporarily suspended issuance of Danish government bonds.

4 Fleming and Garbade (2004) discuss the strategic fails in the context of negative special repo rates.

5 For example, under the Reverse Distribution Mechanism, investors’ shares are cancelled in proportion to the reduction in value due to negative interest rates, allowing the NAV to remain constant.

6 The Danish Ministry of Business and Growth has chaired a working group with the participation of the Danish financial sector to analyse the different aspects related to negative mortgage rates. Its findings were published in Working Group on Negative Mortgage Rates (2015).

7 In Denmark, where mortgage loans are primarily financed with pass-through bonds rather than deposits, mortgage rates fell together with money market rates and government bond yields. However, bank lending rates for new loans to non-financial corporations edged up in 2015.

8 Under its Quantitative and Qualitative Monetary Easing programme, the Bank of Japan is buying assets to increase the monetary base by about ¥80 trillion annually.

9 See eg Hicks (1937): “If the cost of holding money can be neglected, it will always be profitable to hold money rather than lend it out, if the rate of interest is not greater than zero. Consequently the rate of interest must always be positive.”

10 For a more detailed analysis, see Borio et al (2015), CGFS (2011) and Domanski et al (2015).

11 In addition, Friedman (1969) argues that non-zero nominal interest rates lead to a suboptimal quantity of money. In the case of negative nominal interest rates, the holders of physical currency, who receive a nominal return of zero, benefit from an implicit subsidy. See also Rognlie (2015).

12 For a sceptical view concerning their desirability, see BIS (2015), Borio (2015) and Caruana (2016).

Full text https://www.bis.org/publ/qtrpdf/r_qt1603e.pdf
* 14 pages, 230 kb









Sunday, 20 March 2016
03 20160317 BOJ minutes reveal negative interest rate policy decision
2016-03-20 09:46 PM
http://www.cnbc.com/2016/03/17/boj-minutes-reveal-negative-interest-rate-policy-decision.html
BOJ minutes reveal negative interest rate policy decision
Thursday, 17 Mar 2016 | 8:39 PM ET

The Bank of Japan’s staff made two proposals; one to expand the bank’s massive asset-buying program and another to add negative interest rates to asset purchases, at the January rate review, minutes of the meeting showed on Friday.

The BOJ eventually decided to adopt the negative interest rate policy after several members argued the move would help forestall the risk of external factors delaying the eradication of Japan’s “deflationary mindset,” the minutes showed.

The BOJ unexpectedly deployed the negative interest rate policy in January to stimulate the economy, although four of the nine board members dissented the decision, which drew criticism from lawmakers for failing to boost stock prices or arrest an unwelcome rise in the yen.

The central bank kept policy settings unchanged at a subsequent meeting in March but offered a bleaker view on the economy, signalling its readiness to roll out further stimulus if needed to hit its ambitious 2 percent inflation target.

http://www.cnbc.com/2016/01/28/bank-of-japan-adopts-negative-interest-rate-policy-reuters.html
Negative rates mean Sweden risks bubble: Moody’s


Sunday, 20 March 2016
04 20160319 BOJ chief says spillover effect of negative interest rate policy expected to take time
2016-03-20 09:50 PM
http://mainichi.jp/english/articles/20160319/p2a/00m/0na/001000c
BOJ chief says spillover effect of negative interest rate policy expected to take time
March 19, 2016 (Mainichi Japan)

Bank of Japan Governor Haruhiko Kuroda (Mainichi)

March 16 marked one month since the Bank of Japan (BOJ) introduced a negative interest rate policy. In its monetary policy meeting on March 15, the central bank decided to maintain its current policy of monetary easing, reasoning that there was a need to chart the benefits and side-effects of the policy.

While low home mortgage rates make it easier to borrow money, difficulties in managing funds have resulted in fewer investment choices, and it appears that it will take some time for the policy to bolster the Japanese economy as the central bank hopes.

In a news conference on March 15, BOJ Gov. Haruhiko Kuroda stated, “Interest on money lent to businesses and on home loans has clearly decreased, and we are seeing effects of the policy in terms of interest.” Regarding the actual economy, however, he added, “From here on, it will take some time.”

The aim of the BOJ’s policy is to lower market interest rates and encourage a shift in company and household funds from savings to investment. Market interest rates have declined as the central bank hoped, and interest on newly issued 10-year government bonds, a benchmark for long-term interest rates, has fallen below zero for the first time. The long-term prime rate, which forms a standard for interest on lending to companies, has dropped to between 0.95 and 1 percent per annum, the lowest on record. Banks have also been cutting interest rates for home loans, with the lowest preferential interest rates for 10-year fixed-rate loans at major banks ranging between 0.5 and 0.8 percent per annum — also a record low. As a result, banks have been flooded with inquiries about refinancing.

The negative interest rate policy, however, has failed to produce much of a spillover effect in the actual economy. While refinancing of housing loans frees up funds, the impact on the economy is negligible if people do not use that money to buy things or borrow cash to purchase new homes and the like. Interest is already low, and the negative interest rate policy has not produced enough steam to stimulate investment by companies and households. The economies of emerging nations have also been slowing, and on March 15, the BOJ revised its economic assessment downward for the first time in 23 months.

The negative interest rate policy has also produced some negative effects for households, such as narrowing options on where to put their money. Banks have reduced interest payments on deposits to recover profits they have lost from lowering interest rates on the money they lend. The annual interest rate for regular deposits at major banks has declined to 0.001 percent — yet another record low. This means that 10 million yen deposited for a year will yield just 100 yen in interest — less than the fee for using an automatic teller machine outside regular banking hours. It has also become difficult to secure stable returns from holding government bonds, and life insurance companies are moving to raise premiums for savings-based products such as single premium whole life insurance or to stop selling them altogether.

At its monetary policy meeting on March 15, the BOJ decided to exclude money reserve funds (MRFs), from the negative rate. Since money in MRFs, which serve as settlement accounts for stock investment, are invested mainly in short-term government bonds, introduction of a negative interest rate could heighten the risk of loss of principal, and there were fears of a negative impact on stock investments.

BOJ statistics show that cash circulation in February (the average monthly balance) was 6.7 percent higher than the same month the previous year and the highest year-on-year increase in about 13 years. It is thought that people are holding cash at home.

“With the effects of the negative interest rate, households are losing places to store their money,” Japan’s Weekly Economist magazine surmised.


Sunday, 20 March 2016
05 20160317 Negative interest rates threaten Europe’s financial stability
2016-03-20 09:51 PM

Negative interest rates threaten Europe’s financial stability

Negative interest rates threaten Europe’s financial stability
by Etienne Desjardins, March 17, 2016

Negative interest rates erode the profitability of the banking sector and pose a threat to financial stability. In exchange, they offer an economic stimulus that is mild at best and that has actually been seen to backfire in some regions. The world economy is once again navigating in uncharted waters. Watch out for the reefs.

Central bankers are at it again. After having taken policy rates precipitously to zero following the global financial crisis of 2008 and experimented with the new instruments of quantitative easing and forward guidance, they are back in the lab. The new gadget is called negative interest rate policy, and it is emitting a distressing tick.

The first major central bank to take rates negative was the ECB. It lowered its deposit rate to -0.10% in June 2014, before doubling down – quite literally – the following September. Then came the Danmarks Nationalbank and the Swiss National Bank, followed by the Swedish Riksbank in February 2015. The last entry into the club was by the Bank of Japan in January 2016. The latest of these moves, on March 10th, saw the ECB cut its deposit rate by 10 basis points, bringing it to a historical low of -0.4%.

http://i0.wp.com/globalriskinsights.com/wp-content/uploads/2016/03/rates-chart-1.png?resize=791%2C340

Source: BIS Quarterly Review, March 2016

Why it took so long to implement negative interest rates

Raising or lowering the policy rate is just about the plainest item on a central bank’s menu. In normal times, it is the bread and butter of monetary policy. Why, then, are negative rates being considered by some as the most dangerous experiment in monetary policy to be undertaken in decades?

For a long time economists believed that nominal interest rates could never go below zero, or at the very least should not, given the inherent uncertainty of venturing into such strange and unfamiliar territory.

There are very good reasons to think that. A negative nominal rate on a loan means the lender is effectively paying the borrower. Such a situation has long been the case in real terms. With nominal rates near zero, any positive rate of inflation means that the real return on a loan is negative. However, inflation is hard to evade.

Negative nominal rates, however, are much easier to avoid. Simply holding cash offers a nominal return of 0%. Therefore, it was thought market rates would not go below zero, and hence a negative policy rate would not provide further monetary stimulus.
How have negative rates been implemented?

In practice, negative policy rates mean that banks pay to keep their reserves at the central bank overnight, or equivalently lend them to other banks at a loss. This fee is usually levied only on reserves above a certain amount – sometimes called excess reserves – to avoid penalizing banks for holding a reasonable amount of reserves.

Imposing a negative rate on excess reserves is feasible because to avoid paying the penalty, banks would need to withdraw these excess reserves from the central bank in the form of cash. As long as rates remain only moderately negative, the storage, security, insurance, and inconvenience costs involved outweigh the benefits, and a stampede for physical currency remains unlikely.

Business as usual: Why they are the same as regular rates

The BIS reports that some money market rates have gone negative as a result of the negative policy rates. Commercial banks have thus began lending at a negative nominal yield to short-term corporate borrowers. It would seem that negative policy rates are having the intended effect.

Some sovereign bonds are also trading at negative yields. This, at first glance, is puzzling. The investors buying these bonds are not subject to negative central bank deposit rates, and so should shy away from such assets. Some investment funds, however, are institutionally required to hold sovereign debt, therefore setting a floor on the demand for sovereign bonds irrespective of their yield. Others may still consider a negative-yield asset profitable if interest rates or the exchange rate are expected to move favorably.

http://i2.wp.com/globalriskinsights.com/wp-content/uploads/2016/03/Untitled-18.png?resize=709%2C319

Source: BIS Quarterly Review, March 2016

Additionally, when it comes to currency depreciation, negative yields work no differently than their positive counterparts. A fall in interest rates weakens a currency because investors in search of specific returns are forced to park their capital elsewhere. This is just as true when rates go negative. That is why Switzerland, a common destination for capital fleeing Eurozone volatility, and Denmark, whose currency is pegged to the Euro, have chosen to follow the ECB into negative territory.

Why they are different from regular rates

Negative rates, however, differ in at least one important dimension from positive rates. It is difficult – perhaps impossible – for banks to pass them on to retail depositors.

A good measure of bank profitability is the net interest margin (NIM) – the difference between the average yield banks receive on their assets and the average rate they pay on liabilities. An important component of the latter is the interest rate paid on retail deposits.

When rates turn negative, NIMs get squeezed because asset yields fall but the rate on deposit liabilities cannot be made to follow. With roughly 50% of Eurozone banking profits coming from net interest income, this is a significant side-effect. Partly as a result of this fall in profitability, bank stocks have been consistently underperforming their domestic markets since the introduction of negative rates.

http://i2.wp.com/globalriskinsights.com/wp-content/uploads/2016/03/Untitled-19.png?resize=728%2C437

Banks are unwilling to impose negative rates on depositors because they fear doing so would trigger a run on their deposits. In general, the elasticity of deposits to the rate they are paid is relatively low; few retail depositors switch banks in their deposit rate is cut. Many fear, however, that this elasticity would jump if deposits were brought below zero. Negative rates have a psychological bite that positive rates do not.

The situation is further complicated by the fact that its strategic structure can be conceived as a sort of prisoner’s dilemma. If no banks paid negative interest rates to depositors, it would be in no individual bank’s interest to be the first to do so. If, instead, every bank was paying negative rates to depositors, it would be in every bank’s advantage to be the first to stop doing so.

Some experiments are underway that should help clarify whether there is cause for these concerns. A small Swiss bank, Alternative Bank Schweiz (ABS), started imposing negative rates on individual depositors in January 2016. Some large banks, including Credit Suisse and UBS, have begun doing the same for larger institutional clients.

If banks remain unable to pass on the operational costs entailed by negative rates, this loss in profitability is likely to have perverse side effects. Some banks in Switzerland have responded to negative rates by increasing interest rates on mortgages.

To similar effect, eroded profitability increases the cost of equity for banks. Meanwhile, institutional requirements force banks to hold capital for every new asset they load onto their balance sheet. While the cost of debt should follow the policy rate, negative rates could end up raising the average cost of issuing a new loan if the cost of equity increases sufficiently. This would, perversely, make banks less willing to extend additional loans.

Banks may also take undue risk in search of the higher yields they now need to stay profitable. Banks are being bled slowly by negative rates. This could push some to act in desperation. Letting this go on for too long would be inviting a repeat of 2008.

The new lower bound

As long as cash exists as an alternative to deposits, there will be a lower bound on nominal interest rates. Therefore, to get rid of the lower bound, some have suggested getting rid of cash completely.

Wherever it lies, the true lower bound is likely to be flexible. Important fixed costs must be paid before a bank can withdraw large amounts of reserves. Banks first have to acquire and adapt large facilities in which to store the physical currency. As long as rates are expected to turn positive quickly enough, they may shy from these investments. Once the fixed costs are spent, however, banks are likely to tolerate much less negativity in interest rates. Thus, pushing rates too low for too long could make the lower bound move up.

Looking forward

Negative rates have crossed the Sea of Japan but they are not about to cross the Atlantic. The likely trajectory for the Fed Funds rate points up, not down, although adverse developments in China or Europe could belie that. Still, the Fed has demonstrated openness to the idea. Its 2016 stress tests for banks will include scenarios where short-term treasury yields turn negative.

It is unlikely that calls to get rid of cash or tax it heavily will be heeded in the near future. The uncertain benefits of such a move would be too difficult to convey to a recalcitrant public.

If that is the case, however, central bankers will need to start bringing rates back in the black soon. Banks can only be bled so much before they start jerking on the operating table. In an already fraught global financial system, that would be to the detriment of all.

ECB cut its deposit rate https://www.ecb.europa.eu/press/pr/date/2016/html/pr160310.en.html
BIS reports https://www.bis.org/publ/qtrpdf/r_qt1603.pdf
50% of Eurozone banking profits https://www.ecb.europa.eu/pub/pdf/other/bankingstructuresreport201410.en.pdf
started imposing negative rates http://news.yahoo.com/swiss-alternative-bank-breaks-negative-rates-taboo-055303880.html
increasing interest rates on mortgages http://ftalphaville.ft.com/2016/03/07/2155458/the-swiss-banking-response-to-nirp-increase-interest-rates/
getting rid of cash http://willembuiter.com/ELB.pdf
short-term treasury yields turn negative http://www.bloomberg.com/news/articles/2016-02-02/rates-less-than-zero-is-bank-stress-fed-wants-to-test-in-2016


Sunday, 20 March 2016
06 201602 Negative Interest Rate Policies May Be Part of the Problem
2016-03-20 09:55 PM
https://www.pimco.com/insights/viewpoints/viewpoints/negative-interest-rate-policies-may-be-part-of-the-problem
Negative Interest Rate Policies May Be Part of the Problem
By Scott A Mather February, 2016

Investors may see these experimental policy moves as damaging to financial and economic stability.

Central banks around the world are developing a newfound fondness for experimenting with negative interest rate policy (NIRP) despite unknown consequences and what appears to be a chilling effect on financial markets.

After initially rejecting the idea given the uncertainties and potential for collateral damage, the European Central Bank in 2014 and the Bank of Japan last month joined the central banks of Denmark, Sweden and Switzerland in negative territory. Now it seems the Fed may be warming to the idea, having gone beyond supportive innuendo to subtle preparation for potentially engaging in NIRP. (One example: The Fed’s 2016 scenarios for bank stress tests, released in late January, included as part of the “severely adverse scenario” the potential for short-term Treasury rates to fall to negative 50 basis points.)

While there is no longer any doubt about the ability or willingness of many central banks to manufacture negative interest rates, their efficacy on growth or inflation is far from certain. In fact, policymakers may have significantly underestimated the economic risks.

The new abnormal

Central bank advocates of NIRP increasingly seem to portray it as nothing more than a natural extension of conventional monetary policy. In a “normal” interest rate cycle, central banks cut interest rates to reduce nominal and real (inflation-adjusted) interest rates; the goal is to ease the burden on debtors and lower hurdle rates for investment. The belief is that lower rates (even negative ones) are always stimulative, while higher rates are always restrictive. However, risks may increase exponentially the lower rates go and the longer they stay there.

Although it is difficult to know the counterfactual because this is such an unprecedented situation, it appears that NIRP has not been especially impactful in lifting growth or inflation, or in lifting expectations about future growth or inflation. Instead, it seems that financial markets increasingly view these experimental moves as desperate and consequently damaging to financial and economic stability.

What are the potential negative externalities that could be upsetting financial markets?

Markets

At a minimum, NIRP is a contributing factor to the financial market volatility of the past few months. And contrary to current central bank dogma, NIRP is possibly one of the major catalysts behind the tightening in global financial conditions. While NIRP undoubtedly helps lower government bond yields, which in isolation represents a loosening of financial conditions, it may be causing the opposite effect on overall financial conditions: widening of credit and equity risk premiums, increased volatility and reduced credit availability from a more stressed bank system.

Moreover, NIRP may act to reduce inflation expectations embedded in financial assets rather than encourage anticipation of a return to targeted inflation. Nominal government bond yields can be decomposed into two yield components: a component that represents the expected “real” inflation-adjusted return, and a component that compensates for expected inflation. The exact decomposition is not scientifically determined; individual investors will make their own decisions. But policymakers hope that all of the downward adjustment in yield reflects a lowering of the real yield component and not the nominal yield piece that reflects inflation expectations.

This seems unrealistic. When interest rates are negative, some of the resulting lower nominal yield will tend to spill over from the real yield component into the inflation expectations component. Central banks cannot control this; the process is imprecise by nature. The result, however, is that NIRP and the lowering of nominal yields can suppress medium- and long-term inflation expectations. This is directly at odds with the central bank policy objective of returning inflation and inflation expectations to target.

In addition, negative interest rates may act to increase risk aversion and uncertainties across the financial system through portfolio decisions. As rates fall into zero or negative territory, the “safest” financial assets – government and other high quality bonds – actually become riskier! As yields are pushed into negative territory, holding these bonds represents a guaranteed loss of purchasing power if held to maturity. In essence, perceived risk-free and other high quality assets are being removed from the financial system and replaced with riskier, negative-expected-return assets. While that may encourage some investors to take more risk to compensate for loss of income, others will certainly be forced to reduce risk in response.

Macro effects

Negative interest rates represent another escalation of the so-called currency wars – these policies seem to have outsized influence on currency levels and volatilities. A beggar-thy-neighbor currency policy designed to suppress a currency’s value for competitive gain can hasten a return to protectionism and nationalistic polices, which are negatives for global growth.

Also, negative rates affect the financial system in other adverse ways. Bank interest margins are reduced and their cost of capital is increased as spreads on debt and equity expand to compensate for reduced profitability. Banks attempt to pass on these costs to consumers and businesses; they also constrain credit and raise lending rates, weighing on growth. Insurance companies and pension funds may also come under stress as potentially reduced future portfolio returns make it harder to deliver on their commitments to policyholders and pensioners.

Finally, negative interest rates also act as a tax on savers and investors who must plan on lower rates of return into the future. This, in turn, may cause an increase in savings rates, further hampering near-term growth.

NIRP alternatives

In summary, negative interest rates may be a central bank tool that is increasingly ineffective at boosting growth and inflation, and may pose more risk to the financial system than commonly understood. It could very well be that a return to more normal monetary policy rates would beget a return to more normal economies with normal inflation expectations.

Even if that were not to be the case, monetary policies more focused on easing financial conditions by lowering credit and equity risk premiums directly (for example, asset purchase policies directed at credit and equity, or raising the inflation target) may prove far more effective than negative interest rate policies that have many unknown costs and risks and, to date, have done more harm than good.


Sunday, 20 March 2016
07 20160129 Bank of Japan adopts negative interest rate policy
2016-03-20 09:57 PM
http://www.cnbc.com/2016/01/28/bank-of-japan-adopts-negative-interest-rate-policy-reuters.html
Bank of Japan adopts negative interest rate policy
Nyshka Chandran | @nyshkac
Friday, 29 Jan 2016 | 12:17 AM ET

The Bank of Japan blindsided global financial markets Friday by adopting negative interest rates for the first time ever, buckling under pressure to revive growth in the world’s third-largest economy.

In a move that was signaled by the Nikkei business daily minutes ahead of the decision, the BOJ said it will apply a rate of negative 0.1 percent to excess reserves that financial institutional place at the bank, effective February 16.

Charging banks for the privilege of parking some of their excess funds was an unexpected move, although not without precedent. Central banks in Europe, notably the European Central Bank, have slashed interest rates below zero before to push down borrowing costs and prod banks to lend more.

The BOJ left its program to buy government bonds and exchange traded funds (ETFs) unchanged.

The central bank noted that the Japanese economy has recovered modestly with underlying inflation picking up, along with spending by companies and households.

“Recently, however, global financial markets have been volatile against the backdrop of the further decline in crude oil prices and uncertainty such as over future developments in emerging and commodity-exporting economies, particularly the Chinese economy,” the BOJ said in a statement accompanying the decision.

“For these reasons, there is an increasing risk that an improvement in the business confidence of Japanese firms and conversion of the deflationary mindset might be delayed and that the underlying trend in inflation might be negatively affected.”
Spending, factory output slumps pile pressure on BOJ

The new system announced on Friday will divide the outstanding balance of each account at the BOJ into three tiers and a positive, zero or negative interest rate will be applied to each one. The bank also clearly communicated a dovish bias, with officials saying they would undertake additional easing if necessary using quantitative and qualitative tools, as well as interest rates.

In addition, the BOJ did not set a lower limit on the yields of Japanese government bonds it purchases, meaning that longer-maturity Japanese interest rates may follow short rates into negative territory, explained Bill Adams, senior international economist at PNC Financial Services Group.

The news sent financial markets into a frenzy, with the benchmark Nikkei shooting up as much as 3 percent and the yen sliding 2 percent against the greenback. U.S. stock futures meanwhile rallied 1 percent.

Richard Harris, CEO of Port Shelter Investment Management, supported Friday’s decision. “They have a problem with buying more government bonds since it just monetizes government debt. Negative rates are the way ahead to go, it’s good for Japan.”

Hitting 2% inflation

Negative rates are aimed at achieving the government’s 2 percent inflation target “at the earliest possible time,” said the BOJ’s statement.

The BOJ now forecasts core inflation to average 0.2 to 1.2 percent between April 2016 and March 2017. Governor Kuroda had previously said he hoped to hit 2 percent inflation by late 2016 but markets are widely skeptical of that.

Collapsing inflation expectations were a key reason underpinning high expectations for fresh stimulus. Ahead of Friday’s decision, leading banks, including Societe Generale and BNP Paribas, estimated the probability of further easing at 40-50 percent.

Consumer prices have remained stubbornly low, seen by December’s core consumer prices released earlier on Friday. The index, which includes oil but not fresh food, ticked up just 0.1 percent on year, unchanged from the previous month.

Friday’s shock move is a direct reaction to the downgraded inflation outlook as a result of January’s oil price crash, which has a bigger impact on global central banks excluding the U.S. Federal Reserve, Adams said.

“The Bank of Japan’s more aggressive easing is a signal that major foreign central banks are not ready to follow the Fed in withdrawing monetary stimulus. More monetary easing announcements outside of the United States are likely in 2016….Foreign economies’ domestic vulnerabilities make their central banks more sensitive to the influence of lower oil prices on inflation than the Federal Reserve.”

Offsetting volatility

The surprise decision was also taken to preempt any dents to business confidence arising from recent market volatility, the BOJ said. It was a close call, with 5 members voting for negative interest rates and 4 against.

Year-to-date, the Nikkei has tanked more than 10 percent,while the haven yen is 1.2 percent higher against the greenback, pushing Japanese front-end interest rates to a premium versus Europe’s negative levels.That’s dealt a blow to corporate sentiment, particularly as a rising currency weighs on domestic exporters, whose overseas earnings have been boosted by a weaker yen since Abenomics began three years ago.

An appreciating yen also threatens to deter wage growth,which is becoming an increasingly significant focus for the central bank.

Prime Minister Shinzo Abe has pushed companies to raise employee salaries and bonuses as he seeks to boost personal consumption levels, a key element of Abenomics, his ambitious plan to reinvigorate the Japanese economy through a combination of fiscal spending, monetary stimulus and structural reforms.

Friday’s outcome also comes a day after the surprise resignation of Economy Minister Akira Amari, which was the latest blow to frazzled markets. Prime Minister Abe quickly appointed Nobuteru Ishihara, a former executive of the ruling Liberal Democratic Party (LDP), as Amari’s successor but little immediate impact is expected on the government’s fiscal stimulus program.

Still, Amari’s resignation could signify a lack of progress in Abenomics, Tim Quinlan, vice president and economist at Wells Fargo, told CNBC.

“It’s been three years now and Abenomic’s track record is spotty at best. Amari’s stepping down is somebody taking ownership and responsibility for the fact that Abenomics is not living up to the hype.”

Spending, factory output slumps pile pressure on BOJ http://www.cnbc.com/2016/01/28/japan-household-spending-slumps-factory-output-slides-adds-to-pressure-on-boj.html
financial markets into a frenzy http://www.cnbc.com/2016/01/28/asia-stocks-look-higher-after-three-day-win-streak-for-oil-on-russia-saudi-arabia-talks.html
surprise resignation of Economy Minister Akira Amari http://www.cnbc.com/2016/01/28/japans-economy-minister-amari-announces-resignation.html


Sunday, 20 March 2016
08 20160220 3 Dangers of a Negative Interest Rate Policy
2016-03-20 09:59 PM
http://www.fool.com/investing/general/2016/02/20/3-dangers-of-a-negative-interest-rate-policy.aspx
3 Dangers of a Negative Interest Rate Policy
Sean Williams

Setting benchmark interest rates to a negative number is a central bank tactic designed to spur lending and prevent deflation, but it also carries some economic risks.

Take everything you think you knew about the Federal Reserve’s interest rate policy and throw it out the window, because earlier this month Fed Chair Janet Yellen announced plans to run a stress test on the United States’ financial institutions to see how they would cope with a negative interest rate environment.

Why banks are considering negative interest rates

Think a negative interest rate policy, or NIRP, could never come to the United States? Don’t rule it out, as Yellen has hinted that the financial governing body would consider all options to stimulate U.S. economic growth and provide a semblance of stability. Although, to be crystal clear, the Fed has also implied that it’s still quite a ways away from even considering a move to negative interest rates.

That, however, hasn’t stopped the third-largest economy in the world, Japan, from shocking the world with a NIRP. At the end of January, the Bank of Japan announced it was moving its benchmark lending rate to minus 0.1% in an effort to stimulate its stagnant economy. The BOJ also left in place its current stimulus measures, which include ETF and government bond purchases.

The idea of a negative rate is that it charges banks interest for parking their money in a central bank, which encourages those banks to lend to more of it out to consumers and businesses, which in turn can boost consumption, business expansion, and job creation. As long as benchmark rates remain low, or negative, businesses should, in theory, have more incentive to borrow at a low cost and put their capital to work.

In Japan’s case, its economy has also dealt with several long periods of deflation, or falling prices. And while decreases in prices could be construed as positive for the consumer, deflation is bad news for businesses and economies broadly. It’s a signal that businesses have lost pricing power, and that demand is likely falling. Another value of negative interest rates is that they also help spur inflation. And a healthy inflation rate — say, in the 2%-to-3% range — is suggestive of a strong and steady economy.

And, in case you were wondering, Japan isn’t alone. Switzerland and Sweden have also imposed negative interest rates.


Fed Chair Janet Yellen. Image source: Flickr user Day Donaldson.

Three dangers of a negative interest rate policy

While encouraging lending and a potential rise in inflation are the upsides of a negative interest rate policy, there are also three big dangers of a NIRP.

First, negative interest rates discourage saving and interest-based investments. It’s highly likely that banks would further reduce interest paid to account-holders on checking and savings accounts, and it’s quite possible that CD yields would drop further. Even with inflation tame for the time being, low CD yields would almost ensure that ultra-conservative investors would be losing real purchasing power from the money placed in those assets.

In another context, negative interest rates penalize those among our nation’s seniors and baby boomers who felt victimized by the 2007-2009 stock market crash, and who still don’t have the stomach to invest in the volatile stock market again. Often loaded with interest-dependent investment options like CDs and savings accounts, these individuals could find it very difficult to grow their wealth, and some may not hit their retirement goals.

Secondly, financial institutions being penalized by central banks are likely to pass the costs on to their customers by imposing higher fees. If banks are going to be charged by a central bank for hanging onto cash, but they remain leery about lending, they may instead boost high-margin fees to raise additional cash. Monthly charges for maintaining a checking account, higher fees for wire transfers and overdrafts, fees for out-of-network ATM usage, and even fees to see a teller as opposed to using an ATM, could come into play and rise. In fact, many of these fees have been rising, on average, over the past couple of years, whether you realize it or not.

As icing on the cake, U.S. News & World Report noted last March that some banking customers in European markets where lending rates are negative are actually paying interest to their banks!

Accountant Pixabay
Image source: Pixabay.

The final danger of a NIRP is that it may encourage more speculative investing, which in turn could increase market volatility.

If investors can’t generate any return on investment by parking their money in CDs or savings accounts, they may grow more desperate for sources of income appreciation. Although investing in the stock market has been shown to be a good source of income generation over the long term, not all investors have that long-term mindset. What might happen is a considerable rise in risk-taking among investors, which could correlate to an increase in volatility in equity prices.

One smart way to counter negative rates

If these dangers demonstrate anything, it’s that a NIRP may not be a cure-all for the U.S. economy. Nonetheless, in the somewhat unlikely event that the Fed does choose to adopt negative interest rates, there’s a pretty simple solution that should allow investors to generate real wealth and sleep well at night. This solution? Buy high-quality dividend stocks.

As long as you can add brand-name businesses with superior yields to your portfolio, you should be able to generate income above and beyond the rate of inflation. On the flip side, the strength of a business’ brands, and a recurring dividend, afford you the patience to wait for an eventual economic turnaround. High-yielding names like AT&T, Philip Morris International, and Johnson & Johnson aren’t going anywhere just because lending rates may one day move into negative territory, and the dividend income they provide can potentially fuel inflation-topping wealth generation.

The $15,978 Social Security bonus most retirees completely overlook
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. In fact, one MarketWatch reporter argues that if more Americans knew about this, the government would have to shell out an extra $10 billion annually. For example: one easy, 17-minute trick could pay you as much as $15,978 more… each year! Once you learn how to take advantage of all these loopholes, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how you can take advantage of these strategies.

Sunday, 20 March 2016
09 20160301 The Investing Implications of Negative Interest Rates
2016-03-20 10:02 PM
http://www.nasdaq.com/article/the-investing-implications-of-negative-interest-rates-cm586639
The Investing Implications of Negative Interest Rates
By Russ Koesterich, BlackRock
March 01, 2016, 09:35:05 AM EDT

It’s hard to miss all the media mentions lately surrounding negative interest rate policy ( NIRP ). A handful of developed countries across the globe-including Japan- have implemented negative interest rates lately , as the chart below shows, and the Federal Reserve (Fed) is analyzing the implications of moving the U.S. Federal Funds rate into negative territory too . It’s no wonder, then, that many investors are asking how negative rates could impact portfolios.

The technical details of negative interest rates

Simply put, when rates are negative, a depositor (think a retail bank) has to pay a central bank for the benefit of parking cash at the nation’s central bank coffers. Or put another way, negative rates mean lenders pay borrowers for the privilege of lending (think of a bank paying you to take out a mortgage). The theoretical aim of such policies is that since banks would have to pay to store their cash, they would be motivated to lend any extra cash to businesses and consumers, propelling the economy.

How negative interest rates affect equities, bonds and currencies

While it still remains to be seen whether negative rates will have this intended economic effect, from a portfolio standpoint, negative interest rates are likely to continue impacting various asset classes.

Equities

From a sector standpoint, the banking sector is most vulnerable to negative rates, not only because retail banks have to pay central banks to park their reserves. The sector’s business model is built around borrowing at the short end of the yield curve (think deposits) to lend at the long end (think loans). Since the long end of the curve tends to be anchored from years of quantitative easing purchases, NIRP tends to hurt banks’ profit margins on the short end, especially since many banks are reluctant to charge depositors.
As such, the financial sector has struggled in countries with negative rates and could struggle further. This is one of the reasons why we recently downgraded our view of the global financial sector to neutral . According to Bloomberg data for Stoxx Europe 600 indices, since the June 2014 introduction of below-zero rates in the eurozone, the region’s retail and housing-related sectors are down in absolute terms -3 percent and 0 percent respectively.
But they’re outperforming the European banking sector and the broader European market, which are down -39 percent and -7 percent respectively over the same time period. (As of 2/26/2016) Meanwhile, from an overall market perspective, negative interest rates should, in theory, function the same way as the lowering of rates to zero percent has since the crisis, benefitting stocks overall. But in practice, this unique round of stimulus may not be as rewarding.
For one, valuations still remain elevated, even amidst this year’s selloff. For instance, via Bloomberg, while the price-to-earnings ratio for the S&P 500 has fallen 5 percent in 2016, it still remains 25 percent higher than it was at the start of 2012. Second, negative interest rates could be seen as an attempt to drag down long-term rates further, but the efficacy of this unconventional policy has had only limited success in encouraging businesses and households to borrow and spend.
Lastly, there’s some evidence that global markets will perform not on the depth of negative rates, but rather on how well communicated the policy is to the public and if it appears to have truly lasting effects for the real global economy. This helps to explain why markets reacted unfavorably to the news out of negative interest rates out of Japan. The negative reaction may also have been because the negative rate only applies to a small percentage of Bank of Japan (BOJ) reserves.

Bonds

Negative rates are a sign of central bankers’ concerns about slowing economic growth and deflation. In such an economic environment, government debt prices are likely to rise, while government debt yields fall (bond prices and yields work inversely). In fact, according to Bloomberg data, as major central banks promised or delivered more stimulus support and interest rate cuts, yields of long-dated government bonds have fallen across the world.
Meanwhile, fixed income credit sectors, such as U.S. high yield and emerging debt, are suffering from idiosyncratic factors such as lower oil prices and slower economic growth, and thus may be more challenged in a period of high market uncertainty. For this reason, we recently suggested investors consider adding back some interest rate exposure into portfolios, as a hedge against equity risk.

Currencies

After rallying close to 11 percent in 2015, the U.S. Dollar (USD) has become a very crowded trade and has suffered amid this year’s economic growth concerns, with the Bloomberg Dollar Index Spot (DXY) down close to 1 percent year to date. Looking forward, the further the Fed is from achieving its economic goals, the more likely the USD is to suffer.
Still, it’s unlikely that the Fed will move to negative interest rates, as this would represent a sharp and abrupt reversal of the central bank’s December hike, and we haven’t seen economic data negative enough to warrant such an action. On the other hand, with the recent commitment from the Bank of Japan (BOJ) of more stimulus, and expectations that the European Central Bank (ECB) is on the verge of another deposit rate cut, the euro and yen may weaken versus the dollar.
As such, to the extent that the Fed’s policies continue to diverge from that of other major central banks, it’s still worth considering hedged currency positions for certain international equity exposures. Of course, there’s much to be determined with respect to the impacts of NIRP, and just how widespread the policy will become globally is still uncertain.
But what’s certain is that economic textbooks are being rewritten, and this will inevitably impact various asset classes. Russ Koesterich , CFA, is the Chief Investment Strategist for BlackRock. He is a regular contributor to The Blog . Terry Simpson, CFA, contributed to this post. He is a Global Investment Strategist for BlackRock.

all the media mentions http://www.marketwatch.com/story/negative-interest-rates-more-bad-news-for-savers-2016-02-25
have implemented negative interest rates lately https://www.blackrockblog.com/2016/02/22/problems-negative-interest-rates/
into negative territory too http://www.cnbc.com/2016/02/11/fed-chair-yellen-theres-always-some-chance-of-recession.html
our view of the global financial sector to neutral https://www.blackrock.com/investing/literature/market-commentary/investment-directions-en-us.pdf?cid=blog:negative:blackrockblog:russ
U.S. high yield and emerging debt, are suffering from idiosyncratic factors https://www.blackrock.com/investing/insights/investment-directions?cid=blog:negative:blackrockblog:russ
suggested https://www.blackrockblog.com/2016/02/09/ballast-portfolio-bonds/


Advertisements