Negative interest rates imposed by central banks have generally worked as a tool to boost inflation, pulling down yields and sometimes weakening currencies, International Monetary Fund research has concluded.
It also found that commercial banks for the most part have maintained their profits under such policy, cushioning margins with such tactics as not passing on all of a policy rate cut to customers.
The findings come in a report by IMF economists Giovanni Dell’Ariccia, Vikram Haksar and Tommaso Mancini-Griffoli who studied the impact of sub-zero interest rate policy in the euro zone, Denmark, Japan, Sweden and Switzerland.
Cutting rates below zero has been a factor in some central banks’ struggle to help their economies recover from the financial crisis and its accompanying trend towards deflation.
The European Central Bank, for example, currently has an overnight deposit rate of minus 0.4 percent. This means it effectively charges banks for holding deposits,