Negative interest rates policies will fail to stimulate the economy in the Eurozone and Japan, argues one fund manager.
The European Central Bank and the Bank of Japan both moved to negative interest rates this year in an attempt to boost inflation.
However, Chen Zhao, co-director of global macro research at Brandywine Global, a subsidiary of Legg Mason, says: “Since the ECB and the Bank of Japan have introduced negative rates both the Euro and the Yuan stayed flat. Negative interest rates haven’t even been able to drive down the currency and they have created a huge chaos in money market funds.
“I think negative rates are useless to stimulate credit demand. How can you stimulate credit demand through negative rates? It will not reach the expected results.”
However, Andrew Belshaw, head of investment management at Western Asset Management, another Legg Mason boutique, says credit demand has picked up in Europe since the ECB slashed rates in 2014.
He says: “The key metric to look at is private sector credit creation. As soon as rates in Europe went into negative territory in 2014 you saw the pickup in credit demand. Private sector credit creation has picked up since that point.
“Therefore, negative rates are important; the prime benefit being that it influences the savings demand imbalance within the domestic Eurozone economy.”