Will markets lose faith in central banks?

Bennelong Funds Management

Over the past five years, financial markets have moved in concert with changes in policy from central banks. Much of the share market recovery since 2009 has been attributed to ‘easy money’ – including the policy of quantitative easing. While the real economic benefits from central bank policy are questionable (US economic recovery has been muted at best), it seems they have not finished with their aggressive approach.

During January, the Bank of Japan (BoJ) moved interest rates (on excess reserves) to -0.1%. And although the BoJ was not the first to enact such a policy, there seems to be a clear understanding central banks are not limited to the ‘lower bound’ of zero.

Part of the statement released by the BoJ said, it “adopted the negative interest rate policy in order to achieve its price stability target of 2% inflation at the earliest possible time”, and signalled that it will cut the interest rate further into negative territory, if judged necessary.

The question is, will it work? We think not.

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