Originally Released: November 2019
EXECUTIVE SUMMARY
Any rebound in global growth as we move into 2020 is likely to be modest.
FROM ZIRP TO NIRP
Although falling rates have encouraged companies to borrow, spend and invest, this credit creation channel is stuffed; corporate balance sheets are stretched and China continues to restructure.
As 2020 growth disappoints we will see further rate cuts.
This will take even more Central Banks from ZIRP to NIRP (Zero/Negative Interest Rate Policies).
NIRP will not increase spending, it may even encourage households to increase their savings.
Governments have room to borrow more and spend, if they want to take advantage of low rates.
NIRP creates perverse incentives: cash flow requirements and liability matching means institutional investors must buy even more income generating assets as yields fall.
NIRP can disincentive lending because regulations force banks to hold loss making reserves. There can also be NIM compression if low rates flatten yield curves.
If interest rates become too negative cash hoarding becomes a viable investment proposition.