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How negative must interest rates become before behaviour starts becoming abnormal?
Many investors are wondering how deep into negative territory central bank interest rates can go. For non-bank economic agents, the effect of lower interest rates is felt primarily via long-term interest rates (only banks are sensitive to the repo rate and the interest rate on excess reserves). The question is at what point negative long-term interest rates start to give rise to “abnormal†behaviour: A massive switch of savings into money (zero-yielding sight deposits and bank notes); No more bond purchases by savers and investors; A significant shift in the household savings rate (which could be in one direction or the other). We see that the floor for long-term interest rates is still lower than the levels reached since 2016 and more specifically in 2019-2020.
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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