The Implications of Ultra-Low and Negative Interest Rates for Asia

Abstract

Twenty years after the East Asian financial crisis, Asia is facing challenges as advanced economies implement unprecedented low and negative interest rate policies to jumpstart moribund economies and avoid deflation. As the longer ends of yield curves in many advanced economies plunge into negative territory, fears are growing that these policies may create unintended side effects, including cash hoarding, housing bubbles, and damage to banks’ balance sheets. It has long been argued that Asian financial markets are influenced more by the monetary policies of advanced economies than their own, so Asia may be affected disproportionally by volatile swings of currencies, international capital flows, and debt levels.