LONDON (Reuters) - The Bank of England has no plan now to charge lenders to park their money at the central bank to get them to lend more, deputy governor Charles Bean said on Wednesday, describing talk of negative interest rates as “blue sky thinking”.
Fellow deputy governor Paul Tucker on Tuesday raised the possibility that the bank could charge lenders to hold their money, which may encourage them to lend to companies instead, possibly boosting growth.
But Bean said this was just one idea among many that policymakers had considered and rejected in a regular review of more radical options.
“Any suggestion that we have a plan to introduce negative interest rates immediately, I should make absolutely clear, is not the case,” Bean said when asked about Tucker’s comments.
Sterling hit a session high against the dollar after Bean’s comments, while the currency was also buoyed by slightly better-than-expected UK growth numbers.
Still, Bean said policymakers should be open to new ideas given the sluggishness of Britain’s economy and, on the other hand, inflation persistently overshooting the bank’s target.
He also added his voice on Wednesday to calls for a review of the central bank’s remit, though he downplayed speculation that any radical change was looming.
“I think it is sensible to review the framework to assess whether it is fit for purpose or can be materially improved, though the hurdle for change should be high,” he said in a speech.
“But there is a danger of expecting too much from monetary policy,” Bean added at a conference hosted by the free-market Institute of Economic Affairs think tank.
The British economy contracted in the fourth quarter of 2012, revised data showed on Wednesday, raising the prospect of a third recession since the financial crisis.
The impending arrival in July of Canada’s Mark Carney as the Bank of England’s next governor has led to expectations that he will push for a new approach to get Britain out of its economic doldrums. Carney has also proposed a debate about the central bank’s mandate.
In his speech, Bean said the bank stood “ready to take further such action should it be warranted”.
“But such policies cannot - and should not seek to - prevent the necessary de-leveraging and rebalancing of production away from non-tradables towards tradables,” Bean said.
Late on Tuesday, another BoE policymaker, Paul Fisher, suggested the bank should buy more government bonds and over a longer period than in the past to try to get growth going.
Bean also sounded sceptical about the idea of the central bank targeting a mix of inflation and growth.
The idea that central banks might consider targeting nominal gross domestic product hit the headlines late last year after Carney mentioned it in a speech.
Since then Carney has downplayed suggestions he will take what many economists consider a radical step and other British policymakers have said the central bank should stick to its focus on inflation.
Bean said the Bank of England was already flexible when it came to its 2 percent inflation target.
Disadvantages of the nominal GDP approach included frequent revisions to the data and the complication of explaining the policy which might make it less effective at keeping inflation expectations under control, he said.
He said there were risks implicit in nominal income targeting because it would keep very loose monetary policy in place even after an economy recovered.
“It is essentially one way of trying to hardwire in a commitment to maintaining a policy that remains loose long after conditions have normalised in order to generate the expectation of temporarily higher inflation in the future,” he said.
Writing by William Schomberg; Editing by Hugh Lawson