Are negative interest rates working in countries that have adopted the policy? Nope.
The main intention of subzero rates is to encourage spending, heading into riskier assets and to spur borrowing. However, according to a new report from the Wall Street Journal, it’s actually having an opposite effect in places where they have negative rates.
The household savings rates in places like Switzerland, Denmark and Sweden are actually going up. The reason is because subzero rates create the unintended psychological effect that the future economic outlook is grim. Therefore, subzero rates diminish the confidence of investors.
Here is the chart from the newspaper:
In Japan, where the central bank adopted a negative interest rate policy in February, the household savings rate is projected to increase. In the first quarter alone, cash and deposits actually went up 1.3 percent compared to the same time a year ago.
Hans-Gerd Wienands, chief financial officer of Messer Group, a German supplier of industrial gases, is right
“This odd policy of negative interest rates hasn’t motivated us to invest more. On the contrary, it’s a signal that the economic situation isn’t improving.”
Pensions are being negatively affected by negative rates, the European Central Bank (ECB) is losing money on its bonds (SEE: ECB buying money-losing bonds to stimulate eurozone economy) and savers are seeing their deposits being eroded.
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