Unconventional Interest Rate Policy

UNCONVENTIONALINTEREST RATES

Monetary Policy

GOALS of Monetary Policy

Stability in

foreign

exchange

market

High employment

Economic growth

Financial markets stabilityInterest rate stability

Price stability

Stability in

foreign

exchange

market

High employment

Economic growth

Financial markets stabilityInterest rate stability

Price stability

CONVENTIONALVs

UNCONVENTIONAL

NEGATIVE INTEREST RATE POLICY

(NIRP)

ZERO INTEREST RATE POLICY

(ZIRP)

RESTRICTIVE INTEREST RATE POLICY

(RIRP)

QUANTITATIVE EASING(QE)

UNCONVENTIONALINTEREST RATE POLICY

QUANTITATIVE EASING(QE)

ZERO INTEREST RATE POLICY

(ZIRP)

Central Bank Maintains a 0% nominal interest rate Conventional Monetary Policy is at its maximum potential

to drive growth under ZIRP ZIRP- Related to Liquidity Trap, Nominal interest rate cannot adjust downward a time when savings exceed investment.

Features of ZIRP

COUNTRIES (ADOPTED ZIRP)

JAPAN USA

• First used in the 1990s • Monetary policy during the

subsequent 10 years – Lost Decade

• Japanese economy fell into a liquidity trap

• Relative ineffectiveness of zero interest rates- Japan Continues

• 2008 Financial Crisis- Financial strains in the U.S.

• Interest rates dropped to near zero during this period- 2009

• January 2014, after roughly five years of ZIRP and QE-

U.S. economy improved

Need for ZIRP

NEGATIVE INTEREST RATE POLICY

(NIRP)

ADVANTAGESAND

DISADVANTAGES Unconventional Interest Rate Policies

EFFECTS OF Unconventional Interest

Rate PoliciesON INDIA

INTEREST RATES

INCREASE DECREASE

INVESTMENT CURRENCY

INVESTMENT CURRENCY

INDIA

REFERENCES• http://

www.investopedia.com/articles/investing/022415/how-unconventional-monetary-policy-works.asp

• http://www.investopedia.com/terms/n/negative-interest-rate-policy-nirp.asp• http://

www.tcs.com/SiteCollectionDocuments/White-Papers/Zero-Negative-Policy-Rates-Banks-0416-1.pdf

• http://www.bis.org/publ/work570.pdf• http://

www.livemint.com/Opinion/LdP0jc9h7O3swJlXngUI7N/Unconventional-monetary-policy-on-stilts.html

• http://www.forbes.com/sites/patrickwwatson/2016/05/23/three-weird-consequences-of-nirp/#47725b7f279a

• http://www.huffingtonpost.in/entry/from-zirp-to-nirp_b_10706022• http://

www.livemint.com/Opinion/qq697IFT01gMeqTNBP5LGN/ZIRP-NIRP-and-RIRP.html• http://wolfstreet.com/2016/06/29/nirp-negative-interest-rate-absurdity-11-7-trillion-aft

er-brexit/

THANK YOUPresented BySyril Thomas | Rahul Shah | Sachin Sanghi