The decision by Sweden’s central bank, Riksbank, to cut interest rates into negative territory to minus 0.5 per cent confirms fears that a global race to negative interest is happening. This follows the Bank of Japan’s (BoJ) decision to cut interest rates to minus 0.1 per cent, which caught the market by surprise due to BoJ governor, Haruhiko Kuroda’s persistent objections to such a proposal before he made a U-turn in early February. The European Central Bank has maintained below-zero interest rates since June 2014. All banks have said that there is no limit to how low rates can go and that they would do anything to stimulate their flagging economies. Even the US has not outrightly rejected such a course of action, although US Federal Reserve Chairperson, Janet Yellen, has said that a negative US interest rate is definitely not on the table for now.
Negative interest rates are adopted by central banks to combat deflationary pressures and stimulate growth and consumer spending. Negative interest rates mean that it would cost money for savers to deposit money in the banks, which would encourage them to withdraw it and hopefully spend. It is also meant to encourage business borrowing.
The moves by multiple central banks around the world has resulted in the rise in prices for safe havens such as government debt and gold as investors flock to what they deem as less risky assets.