Negative about negative rates

Posted by: Paul Donovan

19 Dec 2019
  • After five years, Sweden's Riksbank is expected to end its negative interest rate experiment today. Sweden's economic data is not, perhaps, the most accurate in the world but there is no evidence that the Swedish economy is roaring ahead. So why end negative rates?
  • In the short term, negative interest rates had shock value. That might have encouraged bank lending, more borrowing, and less saving. In the longer term, negative rates discourage banks from dealing with bad loans, keep zombie companies alive (hurting good companies), and act as a tax on saving. Other central banks may like to pay attention to Sweden in 2020.
  • UK retail sales and the "get Brexit done" legislative program are due. Brexit remains interminably tedious. The US current account deficit is released. This is politically important, given the obsession with trade on the Trump Twitter Feed.
  • The Bank of England admitted that some traders were tapping into its press conferences before they were broadcast, to gain early access to market vital information. I would like to make it clear that, as far as I am aware, traders are not tapping into the Morning Audio Comment before it is broadcast, however vital the economic information.

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