The vast majority of financial analysts are used to relying on incremental analysis when it comes to explaining the spread of negative interest rates as well as their implications for the global markets and economy. However, this approach might be misleading sometimes, and this may be especially true when highlighting negative rates. Let’s see what happens when central banks impose such rates.
First, we should realize that most economies weren’t designed to work with negative interest rates for a long time. It’s because with constant pressures on net interest margins, financial institutions experience tough challenges when dealing with intermediating financing. Moreover, this might even lead to turning away deposits.
Secondly, persistent negative rates might provoke a growing number of individuals disengaging from a financial system, which currently taxing them for placing savings and deposits.
Thirdly, if negative rates go beyond thresholds of sustainability, this may change the operating modalities of some markets. In simple words, this might generate the puzzling behavior in financial markets.