Bailey Says BOE Hasnt Yet Reached a Judgment on Negative Rates

Bank of England Governor Andrew Bailey pushed back against speculation that central bank would cut interest rates below zero anytime soon, saying policy makers havent reached any judgment on whether to introduce negative interest rates.

The central bank is examining the operational implications of taking rates below zero, such as whether computer systems are able to handle negative figures. However, officials have other tools available and will use them actively as necessary, Bailey said on a webinar Tuesday hosted by Queens University Belfast.

“I just say to people, with all this speculation about whether we are or we aren‘t, we aren’t there at the moment,” Bailey said. “What we are doing is all the groundwork that we need to do to have another tool in the box and have it effectively in the box.”

Money markets briefly pared bets on BOE easing after his comments, pushing back the next 10 basis point rate cut to 0% to June from May before quickly reverting.

Speculation that the BOE will take rates into negative territory has grown in recent weeks as a resurgence of the coronavirus, rising unemployment and the potential for a messy Brexit reinforced downside risks to the U.K. economy. The BOE also stepped up its study of the policy, though it subsequently said this didnt mean action was imminent.

{12}

Policy makers have already expanded asset purchases and slashed rates to a record 0.1% since the virus hit the U.K. They are widely expected to increase the quantitative easing target again, and have said that they will begin structured talks with banks on the viability of sub-zero rates in the coming quarter. Bailey said there was no end date for the review.

{12}

Nearing Negative

Almost two dozen central banks are within 100 basis points of 0%

Source: Bloomberg. Note: Fed policy rate is 0%-0.25%

Deputy Governor Dave Ramsden also played down the speculation. In an interview released on Monday, he said that he regards the current 0.1% level as the so-called effective lower bound for rates. However, Monetary Policy Committee member Silvana Tenreyro told the Telegraph newspaper at the weekend that she sees “encouraging” evidence on the policy.

Separately, Bailey said the U.K. housing market is unlikely to see any sharp downward movement. Home purchases have been buoyed in recent months by a temporary tax reduction thats set to expire in March.

— With assistance by David Goodman, Eileen Gbagbo, and James Hirai