Macro & Investment Insights

The brave new world of negative interest rates

  • 09 March 2016
  • 3min read

Several central banks have started to introduce negative interest rate policies (NIRP). Whether NIRP is a reflection of despair among policymakers failing on their mandate or a smart policy innovation has sparked debate.

Key points

  • Five central banks have introduced negative interest rates, triggering significant debates about their relative costs and benefits.
  • Implementation has been smooth so far and rate cuts have been channelled to the economy through currencies and financial markets.
  • A major concern revolves the potential hit to banks’ profitability from lower net interest income. In our view, negative rates will ultimately be passed to customers if they persist.
  • The effectiveness of negative rates is limited as long as physical cash is not taxed. Operational hurdles are surmountable, but political opposition is  a key unknown.
  • Most risks associated with negative rates will only emerge over time. This supports a short, aggressive response from central banks, as opposed to gradualism.

    Not for Retail distribution:

    This document is intended exclusively for Professional, Institutional, Qualified or Wholesale Clients / Investors only, as defined by applicable local laws and regulation. Circulation must be restricted accordingly.

    This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.

    It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date.

    All information in this document is established on data made public by official providers of economic and market statistics. AXA Investment Managers disclaims any and all liability relating to a decision based on or for reliance on this document. All exhibits included in this document, unless stated otherwise, are as of the publication date of this document. Furthermore, due to the subjective nature of these opinions and analysis, these data, projections, forecasts, anticipations, hypothesis, etc. are not necessary used or followed by AXA IM’s portfolio management teams or its affiliates, who may act based on their own opinions. Any reproduction of this information, in whole or in part is, unless otherwise authorised by AXA IM, prohibited.

    Issued in the UK by AXA Investment Managers UK Limited, which is authorised and regulated by the Financial Conduct Authority in the UK. Registered in England and Wales, No: 01431068. Registered Office: 22 Bishopsgate, London, EC2N 4BQ. In other jurisdictions, this document is issued by AXA Investment Managers SA’s affiliates in those countries.