Negative rate policy - once considered only for economies with chronically low i...
TOKYO - Negative rate policy - once considered only for economies with chronically low inflation such as Europe and Japan - is becoming a more attractive option for some other central banks to counter unwelcome rises in their currencies.
To battle the global financial crisis triggered by the collapse of Lehman Brothers in 2008, many central banks cut interest rates near zero. A decade later, interest rates remain low in most countries due to subdued economic growth. The European Central Bank introduced negative rates in June 2014, lowering its deposit rate to -0.1% to stimulate the economy. Given rising economic risks, markets expect the ECB to cut the deposit rate, now at -0.4%, in September.
But negative rates put downward pressure on the entire yield curve and narrow the margin financial institutions earn from lending. If prolonged ultra-low rates hurt the health of financial institutions too much, they could hold off on lending and damage the economy.
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