Why Negative Interest Rates Sometimes Succeed

Bankers in Germany and elsewhere are up in arms about the ECB’s ultraloose monetary policy — most of all, negative interest rates that have crushed many institutions’ profit margins. But the lacklustre recovery has also led prominent economists to urge the eurozone’s monetary authority, and its counterparts elsewhere, to go further in their actions rather than reining them in. A report last week by the International Centre for Monetary and Banking Studies and the Centre for Economic Policy Research concluded that interest rates should be cut further below zero and asset purchases expanded. “Any side-effects are manageable and not of a magnitude to justify timidity,” said the study, known as the Geneva report and written by four senior economists. While the debate between partisans and opponents of negative rates has become steadily more impassioned, in practice the effectiveness of such policies often depends on the characteristics of individual economies.