Growing acceptance of negative interest rates has reached “vaguely troubling” levels, the Bank for International Settlements (BIS) has said.
Recent switches back into economic support mode by central banks including the European Central Bank and Federal Reserve has led to a record $17 trillion (£13.7 trillion) of bonds trading at negative rates.
This is equivalent to roughly 20 per cent of the world’s GDP, BIS noted in a new report.
Most government debt rates in Japan and Switzerland are now in negative territory, while Germany and the Netherlands have sub-zero yields for up to 25 years.
BIS said that the latest series of rate cuts had further depleted central banks’ ability to tackle the issue, and that markets had been brought to a point that would not have been conceivable a decade ago – even during the financial crisis.
“There is something vaguely troubling when the unthinkable becomes routine,” said the head of the BIS’s Monetary and Economic Department, Claudio Borio.
BIS had appealed to policymakers earlier this year to use their remaining ammunition carefully, but subsequent slowdowns in the global economy have led to further easing.
“Should a downturn materialize,” Borio said, “monetary policy will need a helping hand, not least from a wise use of fiscal policy in those countries where there is still room for maneuver”.
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