Negative interest rates a 'dangerous experiment' as monetary policy hits buffers


By Mehreen Khan
The Telegraph, London
Wednesday, February 17, 2016

Central bank moves to impose negative interest rates mark a "dangerous experiment" in global monetary policy, posing new risks to financial stability, economists have warned.

With banking stocks around the world in turmoil, Morgan Stanley said moves into deeper negative territory threatened to unleash a new crisis of confidence in markets, eroding the profitability of commercial lenders.

Ahead of a much anticipated meeting of the European Central Bank next month, bank profits would erode by 5-10 percent should European Central Bank President Mario Draghi make another cut to interest rates, said Huw van Steenis, analyst at the investment bank.

The ECB's current deposit rate -- which went negative in 2014 -- stands at -0.3 percent, penalizing lenders for parking money with the central bank in a bid to encourage lending. Analysts now expect at least a 10-basis point cut from the ECB in March and an expansion of its E60-billion-a-month quantitative easing programme. ...

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