8 years after the global financial crisis, inflation and economic growth remains elusive after years of 0 interest rates and numerous rounds of quantitative easing. As the pillars of global growth of India and China start to slow down in the past few months, central banks in Japan and Europe push their monetary policies to a new frontier: Negative interest rates.
Normally, a loosening of the monetary policy will lead to a fall in the country's currency (foreign investors will pull out their deposit and seek better yield elsewhere) and a spike in the stock market (local investors find it expensive to park their money in cash and choose to invest for yield). However, the recent monetary policies from Europe and Japan lead to a rise in their currencies and a steep drop of their stock market, with banking stocks bearing the brunt of the selling. How did this abnormality occur? Let me explain why...
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