JP Morgan: Negative rates will stay until 2021.

According to JP Morgan Equity valuations between Japanese and European banks will converge with quantitative easing (QE) programs and negative interest rate policies set to continue for the long term. QE reduces lending rates to negative and that is why JP Morgan expect negative lending rates until 2021.

QE has worked initially and helped to stabilize asset prices, and to lower funding cost for banks. However, the secondary long-term effects of QE are manifesting themselves in the form of pressure on revenues for European Banks with customer margins in euro area declining from 2.5 percent in 2011 to 1.8 percent in 2015.

The European Central Bank, the Danish National Bank, the Swedish Riksbank, and the Swiss National Bank have all pushed key short-term policy rates into negative territory. A negative interest rate policy, essentially charges banks to hold cash at a central bank in the hope that they will instead lend to the real economy. Many expect banks to pass on this disincentive to save to its customers by trimming rates or by ramping up borrowing costs. The policy is increasingly being seen as a viable option for central bankers after Japan's move below zero earlier this year.

While this stimulates growth in some cases, negative rates put pressure on other sectors of the economy. A number of leading analysts have called for a balance of monetary and fiscal measures in order to slowly get the economy out of this QE infinity trap.

Without an adequate fiscal response from governments, growing imbalances make it harder to withdraw stimulus, JP Morgan warns.

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