The New Normal Abnormal – Negative Rates

The New Normal Abnormal – Negative Rates

Source : https://app.hedgeye.com/insights/49038-crash-boom-bang-global-central-planners-can-t-stop-the-selloff

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.

Wild Ride USDJPY Feb2016

Wild Ride USDJPY Feb2016

 

 

One thought on “The New Normal Abnormal – Negative Rates

  1. Absolutely, you are spot on !

    My 2c on this -ve rates : Japan is in a extremely bad situation – having to resort to this draconic measure to stimulate its anaemic economy. Mr Abe is running out of time as his tools to resuscitate the economy has not gain him more popularity but more distaste, resentment and worries to the people.

    In the words of Jim Roger – you should be very worried and be prepared! One of the world’s smartest investor who had his money in China way before the masses catches on.

    Like Nature, it must have its 4 seasons – allowing the plants to regenerate after shedding its leaves – going into winter (like what US need to do rightfully) so that when spring comes, it is in better shape to blossom new flowers and grow new shoots. Artificial stimulation like QE and -ve interest rates are like taking antibiotics and steroid cream – on the surface it seems to heal the wound but the underlying cause is not identified and resolved.

    Who benefits – the ultra rich and billionaires who continue to buy assets cheaply at ridiculously low interest rates and ride the wave for it to appreciate (not forgetting refinancing where they can multiply their properties portfolio)…

    I think the next likely country would be Canada following suit in the negative interest rate……

    Great stuff, keep on writing !

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