11th August 2011
The Bank of Japan was able to weaken the yen by driving interest rates to below zero on deposits it holds for financial companies. Now, the same might be done in Switzerland to temper a soaring franc.
Mindful Money economist blogger Shaun Richards comments on this, and points to "a bigger conundrum" that appears to have gone unreported.
He says: If you think about it the nations that really need low longer-term interest rates do not have them. The crisis nations in the Euro such as Greece, Ireland and Portugal have seen bond yields soar which mean much higher real interest rates. In spite of the recent intervention by the European Central Bank we can now add Spain and Italy to this list as their ten-year bond yields remain above 5%.
"This to my mind is a real issue as countries appear to go from sunny uplands to the dark side so quickly when a "tipping point" is reached giving us a very unstable situation. I think this also answers why negative real interest rates are not having the economic effect one might assume. As instability is rife very few are willing to assume that they will last and treat them as temporary."
Alex Eames comments on the blog, and adds: "Talking of negative interest rates it was interesting to note that one New York bank (BNY Mellon) announced charges for customers to hold their cash yesterday. Ok, so it won't affect you and me, as it only applies above 50 million dollars, but it's a step towards negative nominal interest rates."
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