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Bank of England deputy governor warns over negative interest rates

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  • 29/09/2020
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Bank of England deputy governor warns over negative interest rates
Negative interest rates my not be the most effective way to stimulate the economy through the coronavirus downturn and could adversely impact banks, according to Bank of England deputy governor Sir Dave Ramsden.

 

Policymakers slashed the base rate to 0.1 per cent in the wake of the Covid crisis.

Central banks in other countries have taken rates below zero and some critics believe the Bank of England should follow suit.

However, Sir Dave (pictured) told the Society of Professional Economists (SPE): “At present, negative policy rates would be less effective as a tool to stimulate the economy.”

The impact of negative rates on banks would need to be considered, he added.

“If you’ve got negative rates in the toolbox, I feel duty bound, given my duties at the bank, that you’ve then got to explore in more detail the operational considerations which would go with implementing negative rates.”

Banks are typically hurt by lower interest rates which could come at a time when losses increase because of the pandemic.

Sir Dave said: “You don’t want to be in the position where you’ve said you think you could use them, then say at some point in the future, the committee concludes actually we should use them, then you go back and look in the toolbox, and find that actually you can’t use them for an operational reason.”

The deputy governor is a member of the bank’s rate setting Monetary Policy Committee (MPC).

He said the committee was not in a position to use negative rates “imminently” and policymakers would engage with banks.

“We’re continuing with a quantitative easing programme – no one is voting at present for negative rates,” he added.

The remarks contrast to fellow MPC member Silvana Tenreyro.

She recently said most of the signs from countries already introducing negative rates were positive.

 

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