FILE PHOTO:    Governor of the Bank of Japan Haruhiko Kuroda (L to R), United States Federal Reserve Chair Janet Yellen and President of the European Central Bank Mario Draghi walk after posing for a photo opportunity during the annual central bank research conference in Jackson Hole, Wyoming, August 25, 2017.  REUTERS/Jade Barker/File Photo

The next global financial crisis could force central banks to cut to unprecedented negative rates.
UBS Investment Bank argues that economies including the UK, Denmark, and New Zealand could see rates as low as -5%.
Bank says that rate cuts in next global downturn would be much more than “a few manageable bips.”
“If the recession were to come today, we’d be in trouble,” Arend Kapteyn, global head of economic research said at a briefing.

LONDON — Global central banks would need to cut interest rates to unprecedented sub-zero rates to have any positive impact on growth and effectively shield their respective economies, according to research from the investment banking arm of Swiss giant UBS.

Writing in its Global Economic Outlook for 2018-2019, a 223-page epic report, the bank argues that global rates remain so low 10 years on from the crisis, that the next major global correction could leave central banks scrambling for ways to stimulate the economy.

Pointing to a chart from the outlook, the banks economists note that global central banks, if they needed to respond as robustly as they did during the 2007-08 crisis, would be forced to drop interest rates as low as -5%. That is quite simply something that has never happened before.

“One of the concerns right now is that we’re in a very mature business cycle recovery, with a lot of people asking ‘When is the next recession coming?’,” Arend Kapteyn, UBS’ global head of economic research said at a briefing on Monday.

“If the recession were to come today, we’d be in trouble, because there’s basically no policy space,” he continued.

And here is that chart (green triangles show where rates would need to go if the next crisis happens imminently):

“There’s no space on the policy rates side, there is no space in terms of compressing long end yields, …read more

Source:: Business Insider

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