CANADA MAY JOIN TREND OF NEGATIVE RATES, CITI SAYS
Canada could be among a handful of countries that move to adopt negative interest rates in the next two years as the European policy experiment gains steam, says a new report from Citigroup.
The Bank of Japan earlier this year became the fifth central bank to go negative, which forces financial institutions to pay money to park their funds with a central bank. The idea is that making it expensive to hold cash will force businesses and banks to invest their cash reserves instead and spur spending in the economy.
Citigroup economists led by Ebrahim Rahbari said that Israel is likely to be the only central bank to join the negative rate club this year, but Canada, along with a few others, could also introduce such a policy in the next two years.
“In the Czech Republic, Norway and perhaps Canada, a negative policy rate is not part of our central scenario, but the risk of a negative policy rate is material,” said Rahbari and his team in the note.
In Europe, interest rates are already going further into negative territory. Sweden’s Riksbank announced Thursday that it is lowering its repo rate from - 0.35 per cent to - 0.50 per cent. Negative rates have made borrowing for consumers essentially cost-free, while driving down the value of the Swedish krona immensely.
While the central bank has cut rates further, its policy-makers have also pressured the Swedish government to introduce new regulations to cool Sweden’s ultra-hot housing market, which Riksbank officials bluntly say is in a bubble.