The BoE cut rates twice as the COVID-19 crisis intensified in March, reaching a record low of 0.1%.
Most economists say his next move will be to increase the firepower of his bond buying program by £ 645 billion ($ 783 billion) as early as June 18, at the end of his next scheduled meeting.
But investors began Monday to assess the possibility that the BoE will overcome its long-standing reluctance to bring rates below zero from the end of 2020 as it contemplates what may be the biggest economic crisis in three centuries.
The change in markets came after BoE chief economist Andy Haldane said the central bank was considering more urgently negative interest rates as well as buying riskier assets.
“The economy is weaker than a year ago and we are now at the effective lower limit, so in that sense, it is something that we need to examine – examine – with greater immediacy,” said Haldane told the Daily Telegraph newspaper in an interview published late Saturday.
“How could we not be? “
Rate maker Silvana Tenreyro spoke on Monday of the benefits of negative rates, citing the experience of other European countries.
“My personal opinion, which comes from reading European experiences, is that negative rates have had a positive effect in the sense of having a fairly powerful transmission to real activity,” she said during a webinar at the London School of Economics.
Comments by Tenreyro and Haldane, the latter of the BoE’s most outspoken policymakers, struck a more urgent note than the message from Governor Andrew Bailey.
Bailey said last week that rates below zero “were not something we are planning or considering at the moment,” but added that it was unwise to exclude anything.
Allan Monks, economist at JP Morgan, said comments on May 12 that deputy governor Ben Broadbent said the BoE should continue to weigh the pros and cons of negative rates, suggested that the central bank reviewed his position.
“Despite mixed messages, it seems that the MPC (Monetary Policy Committee) thinks this is a debate that at least deserves to be reviewed,” Monks said in an email to customers.
The departure in March of previous Governor Mark Carney, who was particularly reluctant to become negative, may have created space for further discussion, he said.
As the European Central Bank and the Bank of Japan lowered their benchmark rates below zero in an attempt to get banks to turn their liquidity into loans and boost economic growth, the BoE said it believed that such a decision would be counterproductive, as it would harm banks and make them less likely to lend.
But investors have not missed the apparent willingness to reconsider the issue.
Rob Wood, an economist at BofA Global Research, said the brevity of the recent comments allowed for misunderstandings, but the BoE seemed to signal that 0.1% was no longer the floor for rates, and zeroing was possible in August.
“We think a 0% policy rate is easier to imagine for the BoE and it will have to exhaust other options, which will take time, before taking negative rates,” said Wood.
Falling below zero would further weaken the pound, which is already reaching two-month lows against the dollar and the euro due to the prospect of a failure in London trade talks after Brexit with Brussels .
But to say never to sub-zero borrowing costs no longer made sense, said Wood.
“We see the likelihood of higher negative rates for 2021 than 2020,” he said. “We can no longer exclude it. “
($ 1 = 0.8232 pounds)
Written by William Schomberg, edited by Larry King and Giles Elgood
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