Negative interest rates imposed by central banks have generally worked as a tool to boost inflation, pulling down yields and sometimes weakening currencies, IMF research has concluded.
It also found that commercial banks for the most part have maintained their profits under such policies, cushioning margins with tactics such as not passing on all of a policy rate cut to customers.
The findings come in a report by IMF economists Giovanni Dell’Ariccia, Vikram Haksar and Tommaso Mancini-Griffoli, who studied the effects of sub-zero interest rate policies in the eurozone, Denmark, Japan, Sweden and Switzerland.
Cutting rates below zero has been a factor in some central banks’ struggle to help their economies recover from the financial crisis and its accompanying trend toward deflation.
The European Central Bank, for example, has an overnight deposit rate of minus 0.4 percent. This means it effectively charges banks for holding deposits, an attempt to get them to lend it instead, pumping up the economy.
However, it was uncharted territory.
The researchers’ findings were generally positive, suggesting monetary conditions were helped.
“Overall, the policy seems to have worked well: Money market rates and bond yields fell in every country we looked at. Currencies also weakened somewhat, at least temporarily,” the researchers wrote.
“Lending rates declined somewhat, although less than policy rates. Banks benefited from lower wholesale funding costs and some raised fees. Bank profits have generally been resilient. Lending has held up,” they said.
The caveat is that the negative rates are small and they are not intended to last a long time.
“If policy rates remain negative for a long time or if a deeper dive below zero is contemplated, the effectiveness of the policy and the stability of the financial system could be at risk,” they said.
CHIP WAR: Tariffs on Taiwanese chips would prompt companies to move their factories, but not necessarily to the US, unleashing a ‘global cross-sector tariff war’ US President Donald Trump would “shoot himself in the foot” if he follows through on his recent pledge to impose higher tariffs on Taiwanese and other foreign semiconductors entering the US, analysts said. Trump’s plans to raise tariffs on chips manufactured in Taiwan to as high as 100 percent would backfire, macroeconomist Henry Wu (吳嘉隆) said. He would “shoot himself in the foot,” Wu said on Saturday, as such economic measures would lead Taiwanese chip suppliers to pass on additional costs to their US clients and consumers, and ultimately cause another wave of inflation. Trump has claimed that Taiwan took up to
A start-up in Mexico is trying to help get a handle on one coastal city’s plastic waste problem by converting it into gasoline, diesel and other fuels. With less than 10 percent of the world’s plastics being recycled, Petgas’ idea is that rather than letting discarded plastic become waste, it can become productive again as fuel. Petgas developed a machine in the port city of Boca del Rio that uses pyrolysis, a thermodynamic process that heats plastics in the absence of oxygen, breaking it down to produce gasoline, diesel, kerosene, paraffin and coke. Petgas chief technology officer Carlos Parraguirre Diaz said that in
SUPPORT: The government said it would help firms deal with supply disruptions, after Trump signed orders imposing tariffs of 25 percent on imports from Canada and Mexico The government pledged to help companies with operations in Mexico, such as iPhone assembler Hon Hai Precision Industry Co (鴻海精密), also known as Foxconn Technology Group (富士康科技集團), shift production lines and investment if needed to deal with higher US tariffs. The Ministry of Economic Affairs yesterday announced measures to help local firms cope with the US tariff increases on Canada, Mexico, China and other potential areas. The ministry said that it would establish an investment and trade service center in the US to help Taiwanese firms assess the investment environment in different US states, plan supply chain relocation strategies and
WASHINGTON POLICY: Tariffs of 10 percent or more and other new costs are tipped to hit shipments of small parcels, cutting export growth by 1.3 percentage points The decision by US President Donald Trump to ban Chinese companies from using a US tariff loophole would hit tens of billions of dollars of trade and reduce China’s economic growth this year, according to new estimates by economists at Nomura Holdings Inc. According to Nomura’s estimates, last year companies such as Shein (希音) and PDD Holdings Inc’s (拼多多控股) Temu shipped US$46 billion of small parcels to the US to take advantage of the rule that allows items with a declared value under US$800 to enter the US tariff-free. Tariffs of 10 percent or more and other new costs would slash such