We always believed it cannot go below zero.
How can Interest rates be negative? What about getting compensated for saving? Forget it...welcome to the deflationary world where Central Banks have declared war on savings. It's like Bank saying: Go spend that money, or buy stocks, or some other asset but don't save.
Forget QE: Welcome to the World of Negative Interest rates
ZIRP is History. The new normal is NIRP. ZIRP is Zero Interest rates Policy whereas NIRP is negative Interest rates Policy.
On Jan 29 2016: Japan’s central bank announced that it would start charging private sector lenders a penalty of 0.1 percent to hold onto their excess cash, or reserves. In other words, Japan’s central bank adopted negative interest rates
The Rationale: Bank of Japan wants to punish banks that hoard cash instead of extending loans to businesses. The Central Bank wants money to move out of banks to real economy and asset prices and create multiplier effect on economy
Why blame Japan, this is what Swedish Central Bank Riksbank did yesterday
Swedish Central Bank did something very funny. It's interest rates was already negative at -0.35% and it eased to -0.5%. Can you believe it...now they can keep cutting it. Their fear: Currency. They want the money to move out so that their currency Swedish Krone does not appreciate.
We live in a bizarre world where everyone wants cheaper currency and there is race to the bottom. So, it's time to relearn. There is war out there on savings and interest rates can go well below zero.
Also Read: The Big Trend story: Lets talk Crude Oil
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers