Global advisory firm, Oxford Economics, said that once unthinkable, negative interest rates, now used by four central banks, are here to stay.

In an updated briefing, economists Gabriel Stein and Ben May said the following:

• Five central banks (the ECB, the Riksbank, Danmarks Nationalbank, the Swiss National Bank and the Bank of Japan) have pioneered the use of negative interest rates. All five have explicitly or implicitly adopted negative interest rates in a bid to reduce short-term market interest rates and weaken the exchange rate. In Sweden and Denmark, the success in achieving the latter has been undermined by the fact that their key trading partner, the Eurozone, followed in their footsteps and became the third economy to join the negative rate club.
• The effect of negative interest rates via the credit channel is more uncertain, not least since they remain a relatively new phenomenon. Nonetheless, the policy has probably reduced bank borrowing rates and longer-term bond yields, although it is difficult to disentangle the effects of negative rates from other unconventional monetary policy measures such as QE, let alone the degree to which this has boosted activity and inflation.
• Perhaps the key lesson so far has been that the adverse effects of negative interest rates have been less than many had feared, even though interest rates in some economies are now far lower than many considered feasible. There has been little substitution to cash and little sign that banks have sought to cover losses associated with the policy by raising interest rates on new lending.
• As a result, the imposition of negative interest rates can be considered a qualified success. It has clearly shown that the concept of the zero bound is flawed. Indeed, it is not inconceivable that interest rates might be pushed more deeply into negative territory.

This has three main implications. First, more central banks are likely to use negative interest rates if underlying economic conditions worsen, not just now but in future downturns as well. Second, those central banks that currently have negative interest rates are unlikely to be in any hurry to move them back into positive territory. And finally, for many central banks, perhaps most notably the ECB, negative interest rates may usurp asset purchases as the unconventional policy measure of first choice.