The negative-rates club is growing. But there is a limit to how low rates can go

[eridani]

http://www.economist.com/news/leaders/21690031-negative-rates-club-growing-there-limit-how-low-rates-can-go-negative-creep

IMAGINE a world in which tax offices harry people who file their returns promptly; where big supermarket chains pay their suppliers before the goods fly off the shelves and not months afterwards; and where a pre-paid annual gym membership is more costly than paying month by month. It sounds fanciful, absurd even. Yet such a world came a step closer on January 29th, when Japan’s central bank cut the interest rate on bank reserves to -0.1% (see article).

Like its peers in Denmark, the euro area, Sweden and Switzerland, the Bank of Japan will charge commercial banks for holding deposits with it. Almost a quarter of the world’s GDP now comes from countries with negative rates. Though they defy convention, they have proved a useful addition to the central-banking toolkit. The lowest deposit rate set by the central bank acts as a floor for short-term interest rates in money markets and for borrowing rates generally.

Borrowing costs across Europe have tumbled, helping the fight against deflation and driving down exchange rates.