Corporate Insights The upside of negative rates:
Opportunities for financing and growth

The upside of negative rates:
Opportunities for financing and growth

(2nd Quarter 2016)

Themes

  • A primer on interest rates 
  • Implications for corporate financing
  • Strategic implications for corporates

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Introduction

Under Alan Greenspan, and then Ben Bernanke, and now Janet Yellen, the Federal Open Market Committee meetings determine the direction of monetary policy in the United States. The Committee’s meeting statements and minutes, speeches and press conferences by its Chair and members are read like tea leaves. Whether the Federal Reserve will pursue a policy of being dovish or hawkish, lowering or raising the Fed's policy rates, has implications for asset prices, and market sentiment about growth, inflation and the overall health of the economy. 

Central bank-watching is not limited just to the US Fed, but extends to the Bank of England, European Central Bank (ECB), Swiss National Bank, the Bank of Japan, People's Bank of China and beyond. Obsessive policy rate watchers endeavor to discern whether rates may rise or fall in the near-term and extrapolate what that may mean for the longer term.

In fact, the persistent long-term trend over the past 40 plus years is toward lower and lower rates. In most developed markets, policy interest rates have approached the Zero Lower Bound, beyond which policy makers historically have not dared to go. Yet in some developed markets, policy makers have begun to breach that limit, imposing negative rates on their respective markets.

This paper, the third in our ongoing Credit Suisse Corporate Insights series, examines the implications of ultra-low1 and Negative interest rate policy for our clients' financing choices and, as important, their strategic choices. It highlights the nuances of these decisions in an ultra-low or negative rate environment, and how companies can use this knowledge to increase shareholder value. But, first, let's get some context about interest rates and their trends.

  1. We define ultra-low rates as rates below 1.5%, which is the 25th percentile of positive policy rates. Policy rate data sourced from World Bank.