Negative rates effective tools to spur growth
Many central banks may be forced to consider negative interest rates “sooner or later,” given evidence the policy has succeeded in easing financial conditions, the International Monetary Fund (IMF) said in a blog posted on Wednesday.
Since 2012, central banks in Denmark, the euro zone, Japan, Sweden and Switzerland have introduced negative interest rates to battle persistently below-target inflation rates.
In some countries, the policy has been unpopular and criticised for doing more harm than good by straining financial institutions’ margins and discouraging them to boost lending.
The IMF blog countered the view, saying that experiences so far showed negative rates likely supported growth and inflation.
Potential side-effects, such as risks of destabilising the banking system and disrupting market functions, have “largely failed to materialise,” IMF economists said in the blog.
“In sum, the evidence so far indicates negative interest rate policies have succeeded in easing financial conditions without raising significant financial stability concerns,” the IMF economists said.
“Central banks that adopted negative rates may be able to cut them further. Ultimately, given the low level of the neutral real interest rate, many central banks may be forced to consider negative interest rate policies sooner or later.”
Major central banks have deployed massive stimulus measures to cushion the economic blow from the Covid-19 pandemic, and are under pressure to find new means to prop up growth with a dwindling policy tool-kit. – Nampa/Reuters