Bank of America Merrill Lynch Research argues that it's time to get rid of negative policy rates, noticing that central banks with negative rates should not be concerned about currency strength if they bring rates to zero, particularly if they strengthen forward guidance instead.
"Two key developments have happened this fall that makes us believe that this is a great opportunity for central banks to get rid of negative rates, without being concerned about a strong currency, given the side effects. First, the ECB cut depo rates even deeper into negative territory in September and EUR did not respond. Up to an extent tiering may have offset the impact of the depo rate cut, but if this is the case, then why cut in the first place? Second, the Riksbank signaled in its October meeting that it wants to bring rates back to zero, despite weak data, because of concerns from negative side effects, at the same time strengthening forward guidance promising to keep rates at zero for longer, and SEK also did not react much: the market has now priced the hike fully. In both cases, the currencies weakened sharply when the central banks introduced negative rates and remain at such low levels. However, it is now clear to us that negative rates (and bringing rates back to zero) do not affect FX anymore, at least not to the same extent as when they were introduced," BofAML adds.
Risk Warning: Trading Forex and CFDs on margin carries a high level of risk and may not be suitable for all investors. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73.55% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Prior to trading, you should take into consideration your level of experience and financial situation. TeleTrade strives to provide you with all the necessary information and protective measures, but, if the risks seem still unclear to you, please seek independent advice.
© 2011-2020 TeleTrade-DJ International Consulting Ltd
TeleTrade-DJ International Consulting Ltd is registered as a Cyprus Investment Firm (CIF) under registration number HE272810 and is licensed by the Cyprus Securities and Exchange Commission (CySEC) under license number 158/11.
The company operates in accordance with Markets in Financial Instruments Directive (MiFID).
The content on this website is for information purposes only. All the services and information provided have been obtained from sources deemed to be reliable. TeleTrade-DJ International Consulting Ltd ("TeleTrade") and/or any third-party information providers provide the services and information without warranty of any kind. By using this information and services you agree that under no circumstances shall TeleTrade have any liability to any person or entity for any loss or damage in whole or part caused by reliance on such information and services.
TeleTrade cooperates exclusively with regulated financial institutions for the safekeeping of clients' funds. Please see the entire list of banks and payment service providers entrusted with the handling of clients' funds.
TeleTrade-DJ International Consulting Ltd currently provides its services on a cross-border basis, within EEA states (except Belgium) under the MiFID passporting regime, and in selected 3rd countries. TeleTrade does not provide its services to residents or nationals of the USA.