How would the IRS treat negative interest rates on deposits?
Advertisement
A poll by Asahi Shimbun daily showed 61 per cent of people don’t expect negative rates will help the economy while only 13 per cent said they will.
Morgan Stanley analysts agreed, labelling negative interest rates “a unsafe experiment”, which risked encouraging banks to shrink their loan books – the exact opposite of what central banks are hoping for. The step effectively made the negative deposit rate a marginal tax on excess funds that banks weren’t able to squeeze into the current account and helped soften the blow. Anything left over is profit. Banks usually charge fees for deposits below a certain amount. The direct effect on banks’ profits is limited. In the US, the Federal Open Market Committee sets the nation’s monetary policy.
Negative rates are also meant to avoid deflation, a downward spiral of falling prices, wages and demand that can damage economies. But because consumer demand has remained weak in this region, prices have dropped 0.6 percent.
All the while, such rates are likely to weaken global currencies and make exports more competitive in terms of worldwide exchange rates. More increases are anticipated over time in order to normalize the yield curve.
“Low interest rates put pressure on the banking sector, but even so, the Danish banks’ earnings have recovered significantly over the recent years”, Jesper Berg, director general of the Financial Supervisory Authority in Copenhagen, told Bloomberg.
Khalaf says: “Negative interest rates could spread to the United Kingdom as the market is now pricing in a higher chance of an interest rate cut than a rise”. Then, with the European Central Bank hinting at an extension of its own negative-rate policy, investors sought safety in the yen, which rose sharply.
In seeking a risk-free repository, large holders of cash were willing to accept a low but secure coupon, say, 0.10 percent, and were so anxious to do so that they gladly paid more than face value for bonds, resulting in a small net loss in principal.
Investors returned to Treasuries Thursday a day after the Federal Reserve released minutes from its January meeting, but the market should be looking beyond the Fed, according to Mizuho’s chief economist Steven Ricchiuto.
Policymakers need more data on economic activity and lending to judge the impact of the Bank of Japan’s surprise adoption of negative interest rates, Japanese Economy Minister Nobuteru Ishihara said on Wednesday.
The move below zero compounds the miseries for lenders in those countries.
In the euro area, for example, this is 2.2 per cent of banks total assets, while in Japan it is 0.9 per cent. It failed to yield the outcome they desired and some of their member states’ fragile economies are on the brink of collapse today. While an advance beyond 118 yen would require a solid outlook for higher US rates, a gain to about 117.50 is achievable without any expectations of a Fed move, he said. Bernanke’s FOMC pushes interest rates to almost zero, marking a new era for the Fed. The Bank of Japan announced the policy late last month but it officially took effect on Tuesday. Market watchers whom Channel NewsAsia spoke to appear to be wary when it comes to the world’s experiment with negative interest rates.
Currently, about a quarter of the world economy is negative-rate territory. Despite Vermont Senator Bernie Sanders’ campaign trail adulation of northern Europe, it is far from an economic Nirvana.
Advertisement
Further appreciation of the yen is unlikely, even though the overall economy is improving, as negative rates might be enough to at least contain the yen’s appreciation. Only through massive government intervention were we pulled from the brink of destruction.
