How negative are negative rates?

Posted by: Paul Donovan

25 Oct 2019
  • ECB President Draghi has become the first ECB president never to raise rates – a fact that is less impressive when remembering that there have only ever been three ECB presidents. Draghi's final press conference reiterated that negative rates would stay in place. Negative rates act as a selective tax on parts of the financial system, and encourage misallocation of capital.
  • Sweden's central bank does not appear to be a fan of negative rates, suggesting that their own –0.25% interest rate would "probably" rise to 0% in December. The Riksbank was critical of the potential damage of prolonged periods of negative interest rates.
  • Ahead, opinion polls on German business and consumer confidence are due. The German economy has been specifically hit by the slowdown in global investment spending, but it is worth remembering that sentiment data nearly always exaggerates the economic reality.
  • The interminably tedious EU-UK divorce process continues. Because of course it does. It appears that UK Prime Minister Johnson has lost a parliamentary vote before it has taken place. The prime minister wishes to hold a December general election (despite the disruption to Christmas parties from doing so). Opposition parties have indicated they will defeat any such attempt.

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