EUR 102.60 For Business Accounts Only

Welcome to the negative rates club...

During the last six years, a number of central banks are increasingly deviating from their traditional monetary policy tools. The main driver behind this deviation is an imminent requirement to boost economic growth and inflation expectations, as conventional monetary policies reach their limits and policymakers are left without any further policy options. Indeed, during the last six years, central banks have tried just about everything to drag their economies out of recession and keep them afloat. They have slashed interest rates to historical lows, printed money in vast quantities, recapitalized banks with flexible loans, and have been increasingly involved in active exchange rate management. The slow and gradual process of deleveraging, due to the global financial crisis, has resulted in a sluggish growth and low inflation environment. Everyone is trying to take an increasing ‘market share’ from the slow growing global marketplace and keep their economy going.

The persistent global deflationary forces are putting monetary policies to the test, as central banks are finding it increasingly difficult to hit their inflation targets. As major central banks are unable to come close to their inflation targets (close to 2%, for most), more and more they are employing negative nominal interest rates, even though it was perceived that nominal interest rates could not be negative. ​

Why are central banks taking the risk of entering an environment in which typical economic relationships are capable of breaking down?