The New Normal Abnormal – Negative Rates
With Bank of Japan being the latest country joining the Negative Rate group, there are a total of 5 countries having the “normal” rates. And i just wonder which country will be next to follow?
Source A: http://www.bloomberg.com/news/articles/2016-02-02/rates-less-than-zero-is-bank-stress-fed-wants-to-test-in-2016
Source B : http://www.cnbc.com/2016/02/12/next-country-with-negative-rates-could-be-canada.html
Central banks that have gone negative: (Source B)
- Bank of Japan: Rate is minus-0.1 percent for some reserves
- Danish National Bank: Deposit rate is minus-0.65 percent
- European Central Bank: Deposit rate is minus-0.3 percent
- Swedish National Bank: Main interest rate is minus-0.5 percent
- Swiss National Bank: Main interest rate is minus-0.75 percent
Start of abnormal being the normal?
Only US has raised the rate back last year. And in my view, there is a worrying trend where more and more countries adopted negative rate. They are competing with each other on driving down their rate! As such the FED said that in 2016, it will assess each big banks’ resilience, on what if when the three-month U.S. Treasury bill stays below zero for a prolonged period!
Impact of BOJ’s negative rate
BOJ’s negative rate has only intensified the already volatile currency market and set to kick up more of it. Her intention was to devalue it’s currency, increase inflation and to make export more attractive, but it has backfired on her!
After 29 Jan 2016, it dropped from 121 to the lowest of 111 on 11 Feb 2016. It was just another example of the currency wars that we are in, where negative rate driving currency wild.