And negative rates – In some cases, central banks are imposing negative rates. In other words, they are charging depositors for lending to them. So far, these negative rates aren’t being passed on to general consumers, but large depositors are facing them and even smaller retail depositors are seeing account fees rise.
And if that fails….fundamental policy change
There is a limit to how low negative rates can go before they begin to create significant problems – to banks’ profitability and their ability to lend to the wider economy; to depositors as their savings are eroded; and to pensions and life insurers seeking to meet their commitments to policyholders and retirees.
If inflation continues to fall, central banks may be forced to abandon inflation targets and seek a completely new way to manage monetary policy. But the process of evolving towards something new can be painful and could lead to disruption of the global financial system.