Negative Interest Rate Policy Impact on Financial Intermediaries in Industrialised Countries
Explore the repercussions of negative interest rate policy on financial intermediaries in industrialised countries, particularly in the Eurozone. Delve into the prospects for monetary policy normalization and potential repercussions on financial intermediaries in both EU and non-EU countries. Additionally, learn about the main characteristics of covered bonds and their significance in the financial market.
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REPERUSSIONS OF NEGATIVE INTEREST RATE POLICY ON FINANCIAL INTERMEDIARIES IN INDUSTRIALISED COUNTRIES or e uki , University of Belgrade, Faculty of Economics
PROSPECTS FOR MONETARY POLICY NORMALIZATION IN THE EUROZONE Table 1: Technical assumptions about interest rates, exchange rates and commodity prices in the ECB staff projections for the euro area March 2017 December 2016 2016 2017 2018 2019 2016 2017 2018 2019 -0,3 -0,3 -0,2 -0,0 0,8 1,3 1,6 1,9 44,0 56,4 56,5 55,9 -3,9 13,2 3,5 4,6 1,11 1,07 1,07 1,07 3,7 -1,0 0,0 0,0 -0,3 -0,3 -0,2 0,0 0,8 1,2 1,5 1,7 43,1 49,3 52,6 54,6 -4,0 6,6 3,8 4,5 1,11 1,09 1,09 1,09 3,8 0,1 0,0 0,0 3M EURIBOR (percentage per annum) 10 year government bond yields (percentage per annum) Oil prices (in USD/barrel) Non-energy commodity prices, in USD (annual percentage change) USD/EUR exchange rate Euro nominal effective exchange rate (EER38) (annual percentage change) Source: ECB (2017). ECB staff macroeconomic projections for the euro area, March, p. 6, https://www.ecb.europa.eu/pub/pdf/other/ecbstaffprojections201703.en.pdf?8a0f4781fc569a8e7aa 26efdd84fb258, 13.04.2017
POSSIBLE REPERCUSSIONS OF NEGATIVE INTEREST RATE POLICY ON FINANCIAL INTERMEDIARIS IN EU AND NON EU COUNTRIES Figure 1: Ten-year government-bond spreads over German bonds (percentage points) Source: Thomson Reuters published in: The Economist (2017). The unusual gap between American and European bond yields, March 25, p. 63.
Table 2: Main characteristics of covered bonds Motivation of issuer Refinancing Who issues Generally originator of loans Recourse on originator Yes Structure Assets generally remain on balance sheet, but are identified as belonging to cover pool Impact on issuer s capital requirements None Legal restrictions on issuer or Yes (if issued under covered bond eligible collateral legislation) Management of asset pool Generally dynamic Transparency of asset pool to Limited (but quality regularly Investors controlled by trustees or rating agencies) Prepayment of assets No pass-through as assets are replaced Tranching None Coupon Predominantly fixed Source: Packer, F., R. Stever, C. Upper (2007). The covered bond market, BIS Quarterly Review, September, pp. 43-55, p.45http://www.bis.org/publ/qtrpdf/r_qt0709f.pdf, 11.03.2017.
Why could GDP-linked bonds become an attractive instrument for investors? The interest of central banks and IFIs such as IMF to provide an incentive for issuing and trading with sovereign GDP-linked bonds is related to their intentions to reduce the risk of emergence of banking crises in the future. Purchase of GDP- linked bonds would be an investment alternative for financial intermediaries which under the current conditions seek for alternative and better solutions and desired yields.
