Negative rates benefit global economy: IMF

Lagarde says US Fed ‘certainly not actively considering negative rates’

Afp March 19, 2016

WASHINGTON: Negative interest rates set by central banks in Japan and Europe to fight deflation are good for the global economy, International Monetary Fund Managing Director Christine Lagarde said Friday.

Lagarde told Bloomberg TV that the unorthodox negative short-term rates, in which commercial banks pay central banks to hold their money, had probably supported stronger economic growth.

“If we had not had those negative rates, we would be in a much worse place today, with inflation probably lower than where it is, with growth probably lower than where we have it,” she told the broadcaster.

“It was a good thing to actually implement those negative rates under the current circumstances.”

The European Central Bank, the Bank of Japan, and the central banks of Sweden, Denmark and Switzerland have taken rates negative in the past year in efforts to spur commercial banks to push more of their surplus funds into the economy to generate more spending and investment.

While in theory the concept should work, economists are closely studying what happens in Europe and Japan amid worries that negative rates could actually provoke businesses and consumers to be more cautious about spending.

Janet Yellen, chair of the Federal Reserve, which raised interest rates in December, said Wednesday that the Fed is watching the experience of negative rates in other countries. “I guess I would judge they seem to have mixed effects, you know, some positive and some negative things,” she said.

The Fed, for its own part, is “certainly not actively considering negative rates,” she added.

Published in The Express Tribune, March 20th, 2016.

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