Categories: General Market Commentary / Precious Metals
Topics: General Market Commentary / General Precious Metals

Negative rates aren’t working. Why do central banks persist?

Negative rates aren’t working. Why do central banks persist?

Monetary policies in Europe and Japan have produced trillions of dollars of bonds with negative nominal interest rates in the hope of stimulating economic growth. Indeed the Bank of Japan’s recent policy announcement doubles-down on this strategy by pledging to cap 10-year Japanese government bond yields at zero until the central bank hits its 2 percent inflation target. But there is little evidence that negative interest rates are stimulating economic growth. Economic data suggest that consumers are actually saving more in countries with negative interest rates. And business investment, far from being stimulated by near zero borrowing costs, is weak across the board. It’s time for a critical reassessment of unconventional post-crisis monetary policy experiments.

A typical consumer’s lifecycle has three phases-a borrowing phase, a saving phase, and a phase for consuming savings in retirement. The aging of developed countries has increased the economic importance of the latter two life cycle phases. While negative real interest rates benefit borrowing households, they are a tax on savers and those in retirement.

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