Zil. Zilch. Zirp.
Zirp is an acronym for zero per cent interest rates. It’s a term that’s starting to appear in mainstream bank notes, as well as financial blogs, and not just for localised countries, but globally. This from Dresdner yesterday:
Global zirp is becoming a distinct possibility - but the road to get there is not uniform. With King conceding recession and fretting about deflation, the BoE may get to where the Fed already is quicker than one might think.
In fact the Fed is pretty much at zero per cent in the effective rate, if not the target. Germany’s GDP data out today will also likely help the ECB push down rates from their current 3.5 per cent. And we had the Bank of England’s inflation report yesterday, paving the way for further rate cuts to Britain’s current 3 per cent. Japan, the reason many central banks seem to be falling over themselves to slash rates, is already at something like 0.3 per cent.
Are we looking, then, at a race to global zirp? And if so, what will be the effects? Will there be any effects, given that standard monetary policy seems to have become a broken tool?
Mish’s Global Economic Trend Analysis, for one, is not impressed, to put it mildly:
…banks are all competing with each other for capital. They need it to cover future losses on credit cards, foreclosures, REOs (bank owned real estate), commercial loans, etc. ZIRP did not help Japan and it will not help US banks either. In fact, the rate cuts appear to be counterproductive. However, one cannot rule out the Fed cutting rates to 0% anyway. Bernanke is in academic wonderland and appears to be hell bent on sticking with his models regardless of how poorly those models perform in actual practice._______
From Dresdner:
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Related links:
Welcome to the roach motel - FT Alphaville
Fed capitulates: the central bank is broken - FT Alphaville
Zirp coming to Fed? - Mish’s Global Economic Trend Analysis
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