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‘Encouraging’ evidence around negative interest rates – MPC’s Tenreyro

  • 28/09/2020
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‘Encouraging’ evidence around negative interest rates – MPC’s Tenreyro
One of the Bank of England’s key decisionmakers has suggested there is “encouraging” evidence about the effectiveness of negative interest rates.


Silvana Tenreyro, an external member of the BoE’s Monetary Policy Committee (MPC), told The Sunday Telegraph that most of the signs from countries already introducing negative rates were positive.

At its last meeting earlier this month, the nine MPC members voted unanimously to retain the bank’s base rate at the record low of 0.1 per cent.

However, the debate about whether the BoE should cut its headline rate into negative territory has been raging since it made two snap cuts within days in March to help tackle the emerging coronavirus crisis.

While MPC members have often cited opposing views publicly, financial markets expect that the BoE base rate will fall to negative 25 basis points in the next six months and remain there for the next three years.


Negative rates passed to borrowers

Speaking to The Sunday Telegraph, Tenreyro said: “We have been discussing our toolkit in recent months, including how effective negative rates might be in the current context.

“The evidence has been encouraging.”

She noted that there had been “almost full” pass-through of negative central bank base rates into retail lending rates by banks in most countries.

And she added that the increased activity and asset prices had boosted bank profitability in those countries by cutting likely impairments and losses.

Tenreyro’s comments appear to somewhat contradict Bank of England governor Andrew Bailey, who last week tried to cool expectations of a further rate cut, but did not outright reject the idea.

“Yes, it’s in the tool bag, but it doesn’t imply anything about the possibility of us using negative instruments,” he said.

Bailey added: “Nobody should read more into [it] than that’s the next stage of the work.”


QE first

Writing in Mortgage Solutions last week, Alex Maddox, capital markets director at Kensington Mortgages said the risk of a no deal Brexit was also weighing on the central bank.

“At this stage, given that the BoE is still considering the operational implications of negative rates for financial institutions, we can expect further stimulus for the economy via the quantitative easing [QE] program,” he said.

“This may potentially occur in November due to Brexit tensions rising and tighter social restrictions in the coming weeks.

“However, negative rates could still be considered at the start of next year, or sooner, if economic conditions worsen significantly by the end of 2020.”



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