The aim of negative rates is to spur spending and lending by penalizing savers and banks sitting on cash. It also helps that they tend to weaken currencies.
Sweden’s key rate is already minus 0.35 percent and Switzerland’s is minus 0.75 percent. The ECB’s deposit rate is minus 0.2 percent and may be cut further next month, while Denmark’s is minus 0.75 percent.
Lower Peaks
Central bankers are already signaling when they do lift rates they will do so by less than last time, preserving the trend of lower peaks. The median estimate of Fed policy makers is for the long-run neutral fed funds rate to be 3.5 percent. Carney talks of raising rates in a “limited and gradual” way.
Richard Barwell, an economist at BNP Paribas Asset Management, argues that policy makers will still hope to use regulatory tools more next time their economies are in trouble, reducing the need for monetary stimulus. It’s also premature to say that rates will be lower than in the past, he said.
Ruskin nevertheless holds out the possibility that leading central banks will go negative next time and even that the ECB’s deposit rate may not see positive territory again.
“It’s not even clear you’re going to get zero at the peak of the cycle in Europe,” he said. “One hopes U.S. rates will be meaningfully positive in the next cycle, but that can’t be taken for granted in Europe.”