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Will Canada join the negative interest rate club?

Bank of Canada governor Stephen Poloz

There are presently five countries or regions within the negative rate club, and Citigroup expects more will join the fray. Maybe even Canada.

With the ecu Central Bank cutting its deposit rate by 10 basis suggests negative 0.4 percent last week, it cemented its devote the group alongside Switzerland, Sweden, Denmark and Japan.

The economic advantage of looser monetary policy eventually runs out of steam, and recent data props up notion that situations are fading. Yet Citigroup analysts insist that it’s too early to report that negative interest rates aren’t still helping.
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“When negative rates success in weakening currencies, they tend to enhance equity markets,” said Robert Buckland, a London-based currency strategist.

The problem, however, is that the newest round of negative rate moves by both the ECB and Bank of Japan haven’t driven down their currencies or boosted stocks.

Of the 19 countries Citigroup looked at, Buckland anticipates rate of interest cuts in eight of them between now and also the end of 2017.

The strategist is certain that Israel will join the negative rates club in 2016, while he thinks the Czech Republic, Norway and Canada face a material prospect of this occurring.

The need for these movements to investors stems from the fact that the equity market seems to takes its lead in the foreign exchange markets.

“If negative rates are successful in weakening the country’s currency, then the equity market tends to perform well,” Buckland told clients. “But if the currency appreciates despite negative rates, as occurred earlier this year, then the equity market tends to weaken.”

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