Negative Rates Have Adverse Effects on Markets: Pimco
(Bloomberg) -- Policymakers have underestimated the economic risks of negative interest rate strategies, Pimco’s CIO Scott Mather writes in a note to clients.
- Says the efficacy of negative rates on growth or inflation is far from certain; those strategies have not been successful so far
- Negative rate policy behind the widening of credit and equity risk premiums, increased volatility, reduced credit availability from a more stressed bank system
- Markets see central banks experimental moves are seen as “desperate”
- Negative rates can reduce inflation expectations and step up currency wars
- Reduced bank interests margins and cost of capital increase among other adverse effects of those policies
- Sees asset purchase policies or a change in inflation target as more effective tools
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