On Feb. 10, JP Morgan forecasted that the world's primary central banks... ie... Bank of Japan (BOJ), European Central Bank (ECB), and the Federal Reserve will not only carry interest rates into negative territory, but move them down to extreme levels of between one and five percent.
Since the beginning of the year, the BOJ has already pushed interest rates negative and individual nations within the Eurozone have done so as well. But more importantly, banks have not taken well to these moves and several are experiencing liquidity and credit problems that place their solvency at risk.
According to a just released report by JPMorgan, the answer is even scarier. In the analysis published late on Tuesday by JPM's Malcolm Barr and Bruce Kasman, negative rates could go far lower than not only prevailing negative rates, but well below gold storage costs as well.
JPM justifies this by suggesting that the solution to a NIRP world where bank net interest margins are crushed by subzero rates, is a tiered system as already deployed by the Bank of Japan and in some places of Europe, whereby only a portion of reserves are subjected to negative rates.
Which leads to the shocker: JPM estimates that if the ECB just focused on reserves equivalent to 2% of gross domestic product it could slice the rate it charges on bank deposits to -4.5%. Alternatively, if the ECB were to concentrate on 25% of reserves, it would be able to cut as low as -4.64%. That compares with minus 0.3% today and the minus 0.7% JPMorgan says it could reach by the middle of this year as reported yesterday.
In Japan, JPM calculates that the BOJ could go as low as -3.45% while Sweden’s is likely -3.27%.
Finally, if and when the Fed joins the monetary twilight race, it could cut to -1.3% and the Bank of England to -2.69%. - Zerohedge