Bank of Japan (BOJ) Governor Haruhiko Kuroda and European Central Bank (ECB) President Mario Draghi might be among the few economists who still think negative interest rates are a good idea.
Kuroda’s decision last month to charge banks on some excess reserves, a year-and-a-half after his counterpart at the ECB took a similar path, means that a quarter of the world economy is now in the sub-zero club.
Yet, just 27 percent of respondents in a Bloomberg survey said negative rates would help Kuroda reach his goal of boosting feeble inflation, and only 42 percent said the policy is succeeding in the eurozone.
While the strategy has shown it can weaken currencies, the discussion over how long that can last and the likelihood of unintended consequences is getting louder.
What started in 2012 as a consequence of Denmark’s fight to defend its currency peg to the euro has now become a mainstream policy pillar, mulled even by the US Federal Reserve.
The survey of 63 economists showed that, while some said negative rates helped avert even worse downturns, the strategy is only really appropriate for small economies shielding themselves against speculative capital flows.
Ninety percent of respondents said Denmark’s Nationalbank is on the right track and 70 percent approved of the Swiss National Bank’s use of the measure. Both are protecting their currencies.
Less convincing was Sweden’s Riksbanken, which lowered the repo rate to minus-0.5 percent last week to bolster inflation, which had the support of just 41 percent of economists.
Even so, the skepticism does not seem to be deterring monetary officials in Tokyo, Frankfurt or Stockholm.
When it comes to actually boosting inflation, not to mention wages and economic growth, negative rates cannot do much and they distort foreign exchange markets, Rabobank Groep NV economist Elwin de Groot said in Utrecht, the Netherlands.
In a sign that currency traders have started to rebuff both the ECB and the BOJ’s easing efforts, the euro and yen have risen against the US dollar this year.
ECB policymakers acknowledged the issue at their Jan. 21 meeting in Frankfurt. An account of the session published this week stated that, while the exchange rate’s role in transmitting monetary policy is still important, the channel has weakened.
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