LONDON (Reuters) - The Bank of England is weighing up how it could bring negative interest rates to Britain if needed, and there are differing views among its nine monetary policymakers.
The Bank of Japan and the European Central Bank have cut rates below zero to spur banks to lend and boost growth.
The BoE is considering what sub-zero rates would mean for Britain’s large banking industry, which relies heavily on household deposits, and whether in practice they would be likely to bring more lending and stronger economic growth in Britain.
Below are comments from members of the BoE’s Monetary Policy Committee. So far, there appears to be little consensus.
ENCOURAGED BY EVIDENCE
SILVANA TENREYRO, EXTERNAL MPC MEMBER
“The evidence has been encouraging,” Tenreyro said last month about the experience of the euro zone and Japan.
“Banks adapted well – their profitability increased with negative rates largely because impairments and loss provisions have decreased with the boost to activity and the increase in asset prices.”
GERTJAN VLIEGHE, EXTERNAL MPC MEMBER
“My own view is that the risk that negative rates end up being counterproductive to the aims of monetary policy is low,” Vleighe said last week.
“Given how low short-term and long-term interest rates already are, headroom for monetary policy is limited, and we must consider ways to extend that headroom.”
JONATHAN HASKEL, EXTERNAL MPC MEMBER
“(There is) some very, very good work there which ... suggests some positive evidence that negative rates have benefited the economy,” Haskel said this month.
“That said, the effectiveness is probably going to be contingent on the structure of the financial system and the position where we are in the cycle, so we have to look at that very carefully.”
ANDREW BAILEY, GOVERNOR
Bailey says the BoE has to have negative rates in its toolbox but has described evidence for their effectiveness as “pretty mixed”.
“We have to ask the question, if they’re in the toolbox, can we use them? But we are not near, and we haven’t addressed the question (of) should we use them,” he said earlier this month.
He has also said negative rates might be most effective when an economy is more clearly in a recovery phase.
BEN BROADBENT, DEPUTY GOVERNOR
“We keep under review all our potential policy tools and this is a question that’s been thought about on and off since the financial crisis and it’s a balanced judgment,” Broadbent said in May.
MICHAEL SAUNDERS, EXTERNAL MPC MEMBER
Last month Saunders said he was not “theologically opposed” to negative rates but he still had questions about their use.
He said British banks had a relatively high share of deposits so negative rates could squeeze profit margins sharply.
DAVE RAMSDEN, DEPUTY GOVERNOR
“While there might be an appropriate time to use negative rates, that time is not right now,” Ramsden said last week.
“There can be knock-on economic effects through the banking system. These effects could reduce or even counteract the stimulus from negative rates.”
He said negative rates could be more attractive when there was less pressure on banks’ balance sheets.
JON CUNLIFFE, DEPUTY GOVERNOR
In June, Cunliffe said the BoE should not be dogmatic about using negative rates for the first time, but there were “acute” issues for the financial sector.
Negative rates had led to confusion among companies and households in areas where they had been used, he said.
ANDY HALDANE, CHIEF ECONOMIST
Judgements about negative rates would depend on the economic outlook, and only after the operational work needed to assess their feasibility had taken place, Haldane said last month.
Reporting by Andy Bruce; Editing by Tomasz Janowski
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