What Horrified Fund Managers, Banks & UK’s Pension Minister Said About the Bank of England’s Sudden “We Don’t Rule Out” Negative Interest Rates
“The stimulus the country urgently needs is not experimental and dangerous monetary policy.”
Andrew Bailey, the recently appointed governor of the Bank of England (BoE), is considering going where no other BoE governor has ever gone in the central bank’s 325-year history: into negative interest rate territory. On May 20, Bailey told British MPs that the BoE is refusing to rule out cutting the benchmark interest rate below zero in response to the virus crisis.
“We do not rule things out as a matter of principle. That would be a foolish thing to do,” Bailey told MPs. “But that doesn’t mean we rule things in either.”
That statement came just six days after Bailey had told FT readers that negative interest rates are “not something we are currently planning for or contemplating.” Since then, Bailey says he has “changed [his] position a bit.”
Bailey, who replaced Mark Carney as BoE governor just two months ago, is not the only senior BoE official who’s apparently warming to the idea of foisting negative interest rates on the British economy.
So, too, has the central bank’s chief economist Andrew Haldane, who last week said: “The economy is weaker than a year ago and we are now at the effective lower bound, so in that sense it’s something we’ll need to look at – are looking at – with somewhat greater immediacy. How could we not be?”
In the wake of the virus crisis, the Bank of England has already slashed interest rates by 0.65 basis points to 0.1%, its lowest level ever. It has also revved up its swap lines with the Federal Reserve and other central banks, offered billions of pounds of fresh liquidity support to banks, and expanded its QE program by £100 billion to £745 billion and extended what it buys to include corporate bonds.
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