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Negative Interest Rates
Downbeat assessments of the outlook for the European banking sector from the major credit rating agencies have intensified the debate over the efficacy of negative interest rates.
In early December, Fitch Ratings revised the sector outlook for western European banks to negative, suggesting that the deteriorating outlook for GDP growth combined with low interest rates would put pressure on revenue generation and make it challenging for banks to reach profitability targets.On the same day, Moody’s outlook for global banks changed to negative from stable with the agency also citing slower economic growth and low interest rates alongside more volatile operating conditions as factors increasing the credit challenges facing these institutions.
Frances Haque, UK chief economist at Santander notes that the impact of negative rates remains far from clear in terms of the overall benefits/costs and the unintended consequences they create for economies. “In the UK, a number of members of the Monetary Policy Committee are of the opinion that negative rates are not what the UK economy needs and that there are other tools that can be used instead, suggesting that we should look to utilise these first before resorting to areas where we are less sure of the overall consequences,” she says.