IMF's Vinals Says Negative Rates Will Stay as Long as Needed

  • Says central banks could push rate even further below zero
  • Scenario without aggressive central bank action would be worse

International Monetary Fund director Jose Vinals said central banks will continue to push interest rates further below zero if policy makers decide that’s best for the economy.

“They could go lower,” Vinals, director of the IMF’s monetary and capital markets department, said in an interview on Bloomberg Television on Thursday. “What’s important is that each central bank in each particular country and region assess whether the benefits of negative rates are higher than the costs and if that’s the case, negative rates will remain.”

Jose Vinals

Photographer: Simon Dawson/Bloomberg

Signals by central banks from Europe to Japan that additional stimulus is at the ready are failing to ease investor concern that global growth will keep slowing. Sweden’s central bank lowered its key rate even further below zero earlier Thursday and said it’s prepared to use other measures to revive inflation. Still, European stocks are at the lowest in more than two years and a measure of banking shares is at its weakest level since 2012.

“Negative rates are not there because central banks are capricious and want to impose a penalty on the banking sector,” Vinals said. “Negative rates are there because they are part of the tools that central banks have to support the economy.”

ECB Review

The Bank of Japan embraced negative rates last month and the European Central Bank may push its deposit rate lower next month after officials review how their current policy is working.

Vinals said that while there can be consequences for bank profitability, the alternative scenario -- where central banks hadn’t acted so aggressively -- would be a lot worse.

“Let’s ask ourselves what would be the situation if we hadn’t gone so far,” Vinals said. “Where would the economy be, where the asset quality of banks would be, would we be in a very difficult situation? And I think the answer would be yes.”

Commenting on the current market turmoil, Vinals said the declines reflect concerns about everything from the strength of the economy to the banking sector, low commodity prices and emerging markets.

“It is too soon to tell if this is something which is going to impact financial stability in the euro area,” Vinals said. While the the developments are “concerning” there are now “many more buffers” he said.

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