The bank’s deputy governor has warned against negative interest rates

The bank's deputy governor has warned against negative interest rates

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The deputy governor of the Bank of England (BOE) has spoken out against setting a negative interest rate, which would take the cost of orro n below zero.

“Negative policy rates will now be less effective as a tool to stimulate the economy,” says Sir Dave Ramsden of the Society of Professional Economists (SPE).

The bank has so far responded to the epidemic by cutting the level to 0.1%.

But some policymakers want to do more.

If the interest rate is negative, the banks charge a boi for any of its deposits. It encourages banks to do business instead of depositing money.

However, since interest rates are already low, it is not clear that negative rates will help encourage new activity.

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And such measures increase the risk for banks, which make money by charging interest on loans and are usually hurt by lower prices.

The rate will now be reduced to the extent that banks face the risk of losses due to epidemics, which has hampered their ability to maintain the repayment of loans to many customers.

Sir Dave said the Bank of England should consider more potential impacts on banks before acting on negative rates.

“If you have received a negative rate in the toolbox, despite my responsibility to the bank, I feel obligated that you then investigate in more detail the operational considerations in enforcing the negative rates,” said Sir Dave, a member of the BOE’s Monetary Policy Committee (MPC). Member and Deputy Governor of Market and Banking informed SPE.

“In case you said you didn’t want to be in a position where you could use them, then at some point in the future, the committee decided they should actually be used, then you go back and look in the toolbox, and find that In fact, you can’t use them for operational reasons. “

Analysis by BBC News, Business Reporter Jazi Ping Chan

With interest rates already close to zero, the Bank of England is looking for creative ways to keep the economy afloat.

Only a handful of central banks, including Japan, Sweden, Switzerland and the European Central Bank, have joined the negative interest rate club.

Countries such as Switzerland deployed negative rates to try to deter investors from financing the country, which increases the strength of its currency.

But for the UK, a blue copy will not be as easy as copy and paste.

Savers who are not being charged for depositing their money in the bank will simply take their business elsewhere. Britain’s banks are also facing loan losses as borrowers continue to fight for repayments. Lowering their profits can lead to deeper problems.

However, negative rates are not close to the corner. The Bank of England is using the next three months to see how they can be implemented, before deciding if they want to open the toolbox to use them.

Sir Dave added that MPC “is not supposed to be used [negative interest rates] Upcoming “, and will take” time “to get involved with banks.

“We are pursuing a quantitative easing process – no one is currently voting for a negative rate,” said Sir Dave.

“I see effective lower limits [for interest rates] Still at 0.1%, where the bank rate is currently. It is useful to stress.

Sir Dave shared his views on negative interest rates among some members of the bank’s nine-member monetary policy committee, as the bank said it was considering such a move last month.

His warning is in stark contrast to recent comments by Silvana Tenerio, an external member of the committee, who told the Sunday Telegraph that evidence from other European countries and Japan has shown that negative interest rates have been able to cut costs.

He also showed evidence that despite the coronavirus epidemic, banks would face additional pressure on their financing.

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