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David Blitzer, managing director, index management, at S&P Dow Jones Indices, said a negative policy rate by a central bank will spread negative interest rates across the economy, which could lower bank profits but also hurt other financial institutions. “Insurance companies and other non-bank financial institutions facing long term liabilities at fixed nominal rates will suffer,” he wrote in a contribution to an S&P report on the range of impacts of negative interest rates. “Pension funds and other long term investors which rely on bonds for part of their portfolio will find prudent asset allocation impossible. Overall, if negative interest rates spread beyond major financial institutions, society would return to being “cash-only”, said Blitzer.
Robert Palombi, managing director at S&P Global, noted that negative rates can incentivise pension funds or insurance companies to increase their investment risk profile, which in turn can enable riskier borrowing by companies, fuelling a negative feedback loop.
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SP full article: Global negative interest rates