Research Team at Wells Fargo, suggests that once thought to be an impossibility in practice, negative policy rates are slowly being adopted by an increasing number of the world’s central banks. Key Quotes “While Japan is the most recent adopter of negative interest rate policy (NIRP), central banks in the Eurozone, Sweden, Switzerland and Denmark have utilized negative policy rates for quite some time. On balance, central banks’ success with NIRP has been fairly limited thus far. Denmark’s central bank was arguably the most successful in achieving its goal, as it was able to use NIRP and other auxiliary measures to limit capital inflows and protect its currency’s peg against the euro. Meanwhile, Switzerland’s central bank has had little success in suppressing the value of its currency with negative rates. Central banks in the Eurozone and Sweden have adopted NIRP with the hopes of spurring sustained inflation, primarily through bank lending. Thus far, however, lending growth has not shown broad signs of acceleration in these economies, and inflation remains well below target in Sweden and the Eurozone. While NIRP has generally fallen short in helping central banks achieve their goals thus far, most of the disruptions and distortions many had feared would occur as a result of negative rates have yet to play out in reality. In particular, even as interbank lending rates have fallen below zero in all of the economies in our study, interbank lending volume does not appear to have been diminished as a result of this development. Moreover, commercial banks are not showing signs of hoarding cash as a means of avoiding negative rates on central bank deposits, and the pass-through of negative returns to retail depositors has been fairly limited. Perhaps the most pressing concern is the generation of asset price bubbles—rapidly rising house prices in Sweden are a noteworthy example.” For more information, read our latest forex news.