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BIS: How have central banks implemented negative policy rates?

Bank for International Settlements (BIS) has emerged as a leader in analyzing negative interest rates and the implications.

Since mid-2014, four central banks in Europe have moved their policy rates into negative territory. These unconventional moves were by and large implemented within existing operational frameworks. Yet the modalities of implementation have important implications for the costs of holding central bank reserves. The experience so far suggests that modestly negative policy rates transmit through to money markets and other interest rates for the most part in the same way that positive rates do. A key exception is retail deposit rates, which have remained insulated so far, and some mortgage rates, which have perversely increased. Looking ahead, there is great uncertainty about the behaviour of individuals and institutions if rates were to decline further into negative territory or remain negative for a prolonged period.

http://www.bis.org/publ/qtrpdf/r_qt1603e.pdf

 

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