{"id":13342,"date":"2016-02-20T15:36:49","date_gmt":"2016-02-20T19:36:49","guid":{"rendered":"http:\/\/www.pgm-blog.com\/?p=13342"},"modified":"2016-02-20T15:36:49","modified_gmt":"2016-02-20T19:36:49","slug":"are-you-ready-for-negative-interest-rates","status":"publish","type":"post","link":"https:\/\/www.pgmcapital.com\/nl\/are-you-ready-for-negative-interest-rates\/","title":{"rendered":"Are you Ready for Negative Interest Rates?"},"content":{"rendered":"

\"\"<\/a>\"\"<\/a><\/p>\n

Dear\u00a0PGM Capital\u00a0<\/strong>Blog readers,<\/p>\n

In this weekend blog article, we want to elaborate on the possibilities and consequences of negative interest rates.<\/p>\n

INTRODUCTION:
\n<\/strong><\/span>Imagine a bank that pays negative interest. Depositors are actually charged to keep their money in an account. <\/span><\/p>\n

As crazy as it sounds, several of Europe\u2019s central banks have cut key interest rates below zero and kept them there for more than a year. <\/span><\/p>\n

Now Japan is trying it, too. For some, it\u2019s a bid to reinvigorate an economy with other options exhausted. <\/span><\/p>\n

Others want to push foreigners to move their money somewhere else. Either way, it\u2019s\u00a0an\u00a0unorthodox\u00a0choice that has distorted\u00a0financial markets and triggered warnings that the strategy could backfire. <\/span><\/p>\n

If negative interest rates work, however, they may mark the start of a new era for the world\u2019s central banks.<\/span><\/p>\n

THE BACKGROUND:
\n<\/strong><\/span>Negative interest rates are a sign of desperation, a signal that traditional policy options have proved ineffective and new limits need to be explored. They punish\u00a0banks that hoard cash instead of extending\u00a0<\/a>loans to businesses or to weaker lenders.\u00a0<\/span><\/p>\n

\"\"<\/a><\/p>\n

Rates below zero have never been used before in an economy as large as the euro area. <\/span><\/p>\n

While it\u2019s still too early to tell if they will\u00a0work, Draghi said in January 2016 that there are \u201cno limits\u201d on what he will do to meet his mandate. Europe\u2019s central bank chose to experiment with negative rates before turning to a bond-buying program like those used in the U.S. and Japan. <\/span><\/p>\n

\"The<\/a>

The European Central Bank’s (ECB) chief Mario Draghi<\/p><\/div>\n

Policy makers in both Europe and Japan are trying to prevent a slide into\u00a0deflation, or a spiral of falling prices that could derail the economic recovery.\u00a0The euro zone is also grappling with a shortage of credit and\u00a0unemployment\u00a0near its highest level since the currency bloc was formed in 1999.<\/span><\/p>\n

THE CURRENT GLOBAL PICTURE:
\n<\/strong><\/span>The Bank of Japan surprised markets on January\u00a029, by adopting a negative interest-rate strategy. <\/span><\/p>\n

The move came one and a half years after the European Central Bank\u00a0became the\u00a0first major central bank to venture below zero.\u00a0With the fallout limited so far, policy makers are more willing to accept sub-zero rates. <\/span><\/p>\n