Negative interest rates risk backfiring the longer and more deeply central banks in Europe and Japan venture into this unconventional monetary policy, economists from the Bank for International Settlements have warned.

The caution over one of the most important experiments in monetary policy’s history comes before the European Central Bank’s meeting on March 10. Markets expect the ECB to push its deposit rate deeper into negative territory by 10 basis points to minus 0.4 per cent to help stave off the threat of deflation.

Policy makers view negative rates as part of their strategy to raise worringly low inflation. But the strategy is attracting criticism from other central banks, who say they are engaging in deliberate and short-sighted attempts to weaken currencies. Financial investors are also critical, arguing that banks are having to foot too much of the bill for the experiment.