Yen surge to question global monetary easing's effects

2016 ◽  
Keyword(s):  
Interest Rates ◽  
Central Banks ◽  
Recent Improvement ◽  
German Government ◽  
Monetary Policies ◽  
Government Bonds ◽  
Content Type ◽  
Negative Interest Rates ◽  
The Us ◽  
Fiscal Support

Significance Despite aggressive easing by both the Bank of Japan (BoJ) and the ECB, including negative interest rates, the lowering of expectations over the scale and pace of rate hikes by the US Federal Reserve (Fed) has negated their attempts to weaken their currencies and thus boost export-driven growth. This is heightening concern that ultra-loose monetary policies have passed the point where they can revive growth and inflation. Impacts Despite the recent improvement due to the oil price rebound since mid-February, sentiment towards EM currencies will remain fragile. The still strong demand for 'safe-haven' assets, such as German government bonds and gold, implies investors will remain cautious. Negative deposit rates will further undermine banks' earnings, amid persistent concerns about capital levels. Central banks will reach the limits of their capacity to promote growth without fiscal support from governments.

Central bank action will drive global equity markets

2015 ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Equity Markets ◽  
Economic Data ◽  
Equity Prices ◽  
Monetary Policies ◽  
Content Type ◽  
Market Sentiment ◽  
The Us ◽  
Us Monetary Policy

Significance This volatility is driven by expectations of further monetary stimulus in response to a slowing economy. Despite persistent concerns about the fallout from the anticipated tightening in US monetary policy and many country-specific risks, such as the standoff between Greece and its creditors, equity market sentiment remains supported by accommodative monetary policies worldwide and expectations of the US monetary policy tightening being gradual. Impacts Market volatility could increase further, as better-than-expected economic data in the euro-area vies with weaker-than-anticipated US data. Decoupling of surging equity prices and weak economic fundamentals threatens the rally's sustainability, increasing scope for volatility. This decoupling is most pronounced in China, where weak economic data prompt buying of equities in anticipation of stimulus measures. The greatest risk in equity markets is uncertainty surrounding US interest rates and their impact on emerging markets.

Negative rates hold few positives for stock investors

2016 ◽  
Keyword(s):  
Monetary Policy ◽  
Financial Markets ◽  
Interest Rates ◽  
Business Models ◽  
Banking Sector ◽  
Equity Markets ◽  
Central Banks ◽  
Treasury Bonds ◽  
Content Type ◽  
Negative Interest Rates

Subject Financial markets turmoil and negative interest rates. Significance Global stocks are down 11.7% year-to-date in dollar terms and the yield on benchmark ten-year US Treasury bonds has hit a low of 1.66%. The turmoil in financial markets since the beginning of this year is partly attributable to investors' waning confidence in the effectiveness of central bank policy, and, in particular, that negative interest rate policies are exacerbating weaknesses in the banking sector. This is reducing the scope for a rally in equity markets, which have been overly reliant on the flow of cheap money from central banks. Impacts The strong yen will pose a severe challenge to the Japanese government's reflationary programme. While stock markets will remain sensitive to monetary policy, investors will perceive central banks as sources of volatility. The European financials sell-off stems from concerns about their earnings and business models, as opposed to a full-blown liquidity crisis.

Normalisation threatens Emerging Europe’s bond markets

2017 ◽  
Keyword(s):  
Interest Rates ◽  
Federal Reserve ◽  
Emerging Market ◽  
Central Banks ◽  
Capital Inflows ◽  
Bond Markets ◽  
Content Type ◽  
The Us ◽  
Asset Purchases ◽  
Investment Grade

Subject The risks to Emerging Europe’s bond markets from the removal of monetary stimulus. Significance The IMF has warned that the withdrawal of monetary stimulus by the US Federal Reserve (Fed) is likely to reduce capital inflows into emerging market (EM) economies. Emerging Europe is particularly vulnerable, thanks to the additional risks posed by the reduction of asset purchases by the ECB. Corporate bonds are most at risk because of the rapid compression in spreads on sub-investment grade debt, at their lowest levels since the financial crisis. Impacts Hawkish signals from central banks and US tax cuts are taking the benchmark ten-year US Treasury yield to its highest level since mid-March. However, dollar weakness will ease some of the strain on EM currencies and local bonds. With low core euro-area inflation reducing pressure to end QE, the ECB is unlikely to raise interest rates before 2019.

Hungarian forint is increasingly vulnerable to attack

2020 ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
External Environment ◽  
Central Banks ◽  
Content Type ◽  
China Trade ◽  
Bond Yield ◽  
The Us ◽  
National Bank ◽  
Global Growth

Subject Central banks’ policy dilemmas. Significance The National Bank of Hungary (MNB) remains extremely reluctant to raise interest rates despite increasing pressure on the forint. While growth in the euro-area is likely to remain weak this year, strengthening the case for rates to remain on hold, a more supportive external environment, underpinned by an easing of US-China trade tensions, would accentuate the policy dilemmas confronting Central Europe’s central banks, especially given rises in inflation. Impacts Germany’s still-negative ten-year bond yield has risen from record lows in September as markets become less pessimistic about global growth. Markets expect Hungarian monetary policy to remain very dovish, as the domestic twelve-month bond-yield’s end-October turn negative shows. The US S&P 500 index surged by nearly 30% last year and if US-China trade tensions ease slightly this should help it to maintain momentum.

Adoption of yield-curve control could aid US recovery

2020 ◽  
Keyword(s):  
Interest Rates ◽  
Yield Curve ◽  
Balance Sheet ◽  
Quantitative Easing ◽  
Government Bonds ◽  
Content Type ◽  
Forward Guidance ◽  
Reserve Bank ◽  
The Us

Subject Yield-curve control. Significance The US Federal Reserve (Fed) is contemplating yield-curve control (YCC), a policy pursued by the Bank of Japan (BoJ) and Reserve Bank of Australia (RBA) alongside quantitative easing (QE) and forward guidance. A central bank does this by capping the yields on government bonds of a chosen maturity through unlimited bond purchases. This supports the economy by reducing borrowing costs for financial institutions, households and businesses. Impacts By providing transparency over a central bank’s actions, YCC would be likely to reduce the volatility of long-term interest rates. YCC adds to the Fed balance sheet; the Fed will need a credible exit strategy to cut market volatility and the risk of Fed capital losses. A sharp uptick in inflation may put upward pressure on long-term yields, necessitating higher Fed purchases to maintain its targeted peg.

Central Europe's slow rate rises will aim at growth

2021 ◽  
Keyword(s):  
Interest Rates ◽  
Federal Reserve ◽  
Slow Rate ◽  
Emerging Market ◽  
Central Banks ◽  
Content Type ◽  
The Us ◽  
Equity Funds ◽  
Us Dollar ◽  
The Eu

Significance The MNB’s first rate rise in a decade responds to headline inflation rising to the highest rate in the EU. The US Federal Reserve (Fed) decision to bring forward raising interest rates to 2023 is putting emerging market (EM) assets under increasing strain and heaping pressure on Central Europe’s central banks to begin tightening. Impacts Capital markets’ ‘hunt for yield’ will bolster EM bond and equity funds despite concerns about the Fed’s withdrawal of stimulus. The vast majority of investors are behaving as if the current surge in inflation will prove transitory. A sharp deterioration in sentiment may follow if price pressures last longer than expected. Brent crude’s rise to its highest level since October 2018, despite the recent rally in the US dollar, will fuel inflationary pressures.

US election fuels currency volatility

2016 ◽  
Keyword(s):  
Focal Point ◽  
Emerging Market ◽  
European Monetary ◽  
German Government ◽  
Government Bonds ◽  
Content Type ◽  
The Us ◽  
Outstanding Debt ◽  
Japanese Yen ◽  
European Monetary Policy

Significance The peso has lost a further 6.3% against the dollar since September 6 despite the decision by the US Federal Reserve on September 21 to keep its benchmark rate on hold, underpinning a rally in emerging market assets. A victory for Trump would weigh heavily on the dollar if investors pile into haven assets such as the Japanese yen and German government bonds. Impacts At nearly 30% of total outstanding debt, negative-yielding government bonds will increase demand for higher-yielding emerging market assets. Credibility and efficacy of Japanese and European monetary policy in stabilising markets will be a focal point for investor anxiety. Oil prices are still struggling to rally following a proposal by OPEC members to cut production.

Past reforms will aid banks amid the COVID-19 crisis

2020 ◽  
Keyword(s):  
Interest Rates ◽  
Credit Rating ◽  
Content Type ◽  
Credit Lines ◽  
Global Recession ◽  
Negative Interest Rates ◽  
The Us ◽  
Small Business Loans ◽  
Loan Defaults ◽  
The Impact

Significance Confidence among policymakers and investors that the US and UK banking systems will be resilient to the severe global recession is not idle optimism from the Fed or the Bank of England (BoE), but well-founded on the implementation of the Basel III reforms. Impacts Credit lines to aid liquidity mean little for retail or small business loans; firms with no credit rating may struggle to access support. A deeper or longer global recession could trouble even previously well-capitalised banks as loan defaults cannot be sustained for months. Banks will need to be resilient to grow again during the recovery as they could face months, or more, of credit losses. If the global recession deepens, more major economies may consider negative interest rates despite fears of the impact on bank profits.

scholarly journals Risks and the influence of negative interest rates on economic activity: a case study of Sweden, Denmark, and Switzerland

2020 ◽  
Vol 15 (1) ◽  
pp. 30-41
Author(s):  
Liběna Černohorská ◽  
Darina Kubicová
Keyword(s):  
Time Series ◽  
Interest Rates ◽  
Granger Causality ◽  
Economic Activity ◽  
Central Banks ◽  
Time Interval ◽  
Short Term ◽  
Stock Indices ◽  
Negative Interest Rates ◽  
The Impact

The purpose of this paper is to analyze the impact of negative interest rates on economic activity in a selected group of countries, in particular Sweden, Denmark, and Switzerland, for the period 2009–2018. The central banks of these countries were among the first to implement negative interest rates to revive the economic growth. Therefore, this study analyzed long- and short-term relationships between interest rates announced by central banks and gross domestic product and blue chip stock indices. Time series analysis was conducted using Engle-Granger cointegration analysis and Granger causality testing to identify long- and short-term relationship. The first step, using the Akaike criteria, was to determine the optimal delay of the entire time interval for the analyzed periods. Time series that seem to be stationary were excluded based on the results of the Dickey-Fuller test. Further testing continued with the Engle-Granger test if the conditions were met. It was designed to identify co-integration relationships that would show correlation between the selected variables. These tests showed that at a significance level of 0.05, there is no co-integration between any time series in the countries analyzed. On the basis of these analyses, it was determined that there were no long-term relationships between interest rates and GDP or stock indices for these countries during the monitored time period. Using Granger causality, the study only confirmed short-term relationship between interest rates and GDP for all examined countries, though not between interest rates and the stock indices. Acknowledgment The paper has been created with the financial support of The Czech Science Foundation GACR 18-05244S – Innovative Approaches to Credit Risk Management.

Implications of Central banks’ negative policy rates on financial stability

2018 ◽  
Vol 10 (2) ◽  
pp. 310-320
Author(s):  
Benjamin S. Kay
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Financial Stability ◽  
Global Economy ◽  
Content Type ◽  
Interest Rate Policy ◽  
Trade Offs ◽  
Negative Interest Rates ◽  
Rate Policy ◽  
Negative Interest Rate Policy

Purpose While central bankers have widely discussed the trade-offs of negative interest rates on monetary policy, the consequences of negative rates on financial stability are less well understood. The purpose of this paper is to examine the likely and possible financial stability consequences of a negative rates policy with particular focus on banks, short-term funding markets, foreign exchange markets, asset managers, pension funds and insurers. Design/methodology/approach It draws from international experience with negative interest rates to identify financial stability threats posed to any economy by negative interest rates, and it also highlights where the US experience is likely to differ. Findings In time, financial market threats and other logistical issues of a negative interest rate policy can be managed or overcome. Even cumulatively, these threats are likely to be small as long as the rates remain only modestly negative. However, if the rates remain negative for long periods or they become more sharply negative, the rewards of avoiding negative rates increase. Originality/value Does the negative interest rate policy directly or through these challenges of implementation present a substantial obstacle to achieving financial stability objectives? As policy rates go negative in a greater share of the global economy, the financial stability consequences remain poorly understood and under discussed.

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