Negative interest rates risk backfiring the longer and more deeply central banks in Europe and Japan venture into this unconventional monetary policy, economists from the Bank for International Settlements have warned.
The caution over one of the most important experiments in monetary policy’s history comes before the European Central Bank’s meeting on March 10. Markets expect the ECB to push its deposit rate deeper into negative territory by 10 basis points to minus 0.4 per cent to help stave off the threat of deflation.
Policy makers view negative rates as part of their strategy to raise worringly low inflation. But the strategy is attracting criticism from other central banks, who say they are engaging in deliberate and short-sighted attempts to weaken currencies. Financial investors are also critical, arguing that banks are having to foot too much of the bill for the experiment.
Dubbed the central bankers’ central bank, the BIS published research on Sunday which cautioned that it was difficult to predict how individuals or financial institutions would behave if rates were to fall further below zero or stay negative for a long period.
While central banks’ negative rates had impacted borrowing costs in the money markets that banks use to fund themselves, they were yet to affect businesses and households in the way that normal cuts would.
It was unknown, the BIS said, how borrowers and savers would react or whether the channels through which central banks’ rate moves are usually passed on to the broader economy would “continue to operate as in the past”.
The economists also warned that the policy could have serious consequences for the financial sector. Banks have so far taken the brunt of negative interest rates, and have not passed on most of the cost of the cuts to their customers. “The viability of banks’ business model as financial intermediaries may be brought into question,” the research stated.
The ECB and the Bank of Japan are the biggest central banks to have taken rates negative. Others include Sweden’s Riksbank, which cuts its main repo rate last month to negative 0.5 per cent, and the Swiss central bank, which has lowered rates to minus 0.75 per cent.
There are increasing doubts about whether negative rates work -- the BoJ’s surprise move into negative territory halted the yen’s appreciation only for a matter of days.
Pointing to some unexpected effects, the BIS research finds that retail deposits have been insulated from the policy and that some mortgage rates in Switzerland have “perversely increased” .
“If negative policy rates do not feed into lending rates for households and firms, they largely lose their rationale,” said BIS economists, Morten Bech and Aytek Malkhozov. “On the other hand, if negative policy rates are transmitted to lending rates for firms and households, then there will be knock-on effects on bank profitability unless negative rates are also imposed on deposits, raising questions as to the stability of the retail deposit base.”
“如果负政策利率无法影响面向家庭和企业的贷款利率，那它们很大程度上就失去了存在的意义，”国际清算银行经济学家莫滕?本奇(Morten Bech)和艾泰克?马尔霍佐夫(Aytek Malkhozov)说，“另一方面，如果负政策利率转导至面向企业和家庭的贷款利率，那么，将对银行的盈利能力产生连锁效应，除非对存款也实行负利率，而这会对零售存款基础的稳定性造成疑问。”