EUR 114.00 For Business Accounts Only

Negative rates might not be able to fall as much as central bankers want to signal!

​It took just over a month and the economic forecasts of central bankers and market participants are already being challenged. Incoming macroeconomic releases hint at slowing global growth, and continue to underscore the widening divergence between the manufacturing and the service sector. Moreover, the persistence of disinflationary pressures that are keeping inflation far off central bank targets, as well as their increasing impact on inflation expectations is amplifying the situation.

Central bankers are not overlooking the risks; to the contrary, they are recognizing them and are trying to respond. Their response, however, cannot be straightforward, as it was the case in previous monetary policy cycles.

It is clear that the effectiveness of both conventional and unconventional monetary policy tools has been questioned by financial markets that are gradually coming to terms that central banks do not have all the answers, and that some of their policies might have limited and or temporary effect on the real economy. Given the limits and/or constraints that every policy tool has, central banks are increasingly employing multiple methods and tools in order to avoid a global recession.

It is thus not surprising that negative nominal rates have come into fashion as more and more central banks are experimenting with unconventional monetary policy options and tools. The main questions that investors should ask are “how far” and “for how long”… The report focuses on the introduction of negative rates in the euro zone, as it is interesting to explore the boundaries of negative rates in the context of a larger economy versus small open economies, such as Denmark, Switzerland and Sweden..