Negative interest rates “clear sign of desperation" says S&P Global

SINGAPORE - S&P Global has published an in-depth look into negative interest rates – how they have become a primary tool of choice for central banks and governments to stimulate economies where growth seems largely immune to the efforts of traditional fiscal and monetary initiatives and the potential consequences of their ubiquitous arrival.

S&P says nearly 50 million people now live in countries with negative interest rate policies.

“Negative interest rates were once considered by many economists as a radical strategy or even a mathematical impossibility. But, with other stimulus tools either having limited impact or being labeled as ‘politically unfeasible’, some of the world’s most significant economies are now turning to negative interest rates to arouse moribund economies,” says John Kingston, Director of Global Market Insights at S&P Global and project director for the report.

“However, moving to a negative rate environment, in every circumstance that we’ve looked at, is a clear sign of desperation with the list of potential economic damage from these policies substantial.”

The paper concentrates on five primary themes that emerged from S&P Global’s examination:
(1) The rationale for using negative interest policies to spur economic growth;
(2) The impact that such polices are having on the European economy;
(3) The ramification of a negative rate environment on European and Japanese Banks;
(4) The challenges facing insurance and money managers; and
(5) High risk-taking by asset managers to generate returns and yield for clients.

“Central banks’ implementation of negative policy rates is at an unprecedented scale, reflecting both the limits of previous unconventional monetary policies and a general inability to utilize fiscal stimulus to jump start economic growth,” says Kingston.

“However, we believe that this extreme policy approach will have consequences, both intended and unintended, for markets, macro-economic balances, investors, consumers, and policymakers.”  www.spglobal.com (ATI).