Bank of England Governor Andrew Bailey hinted that interest rates could be below zero to boost the economy, telling members that it would be “foolish” to exclude it.
Bailey repeatedly pushed back the prospect of negative interest rates, describing them as not a “plausible tool” when he took the helm in March.
But as the pandemic brought inflation to a four-year low and desperate investors agreed to pay money for the first time to lend money to the government, he said such a drastic move was now possible.
Adjustment: The boss of the Bank of England, Andrew Bailey, told MEPs yesterday that he had “changed his stance” on negative interest rates and that it would be “stupid” to exclude it.
Testifying before the House of Commons Treasury Committee, he said, “I changed my position.
“In this situation, we need to review the tools regularly, we need to keep them under review. I say that in the spirit of excluding nothing and excluding nothing. “
Negative interest rates, which have been rolled out by the European Central Bank and Japan, aim to stimulate the economy.
They mean that anyone wishing to deposit their money with the Bank of England, like street banks, should pay for this privilege. This is designed to encourage banks to lend to businesses and households.
But the policy is controversial and some fear it may be of limited effectiveness in encouraging long-term spending and investment. Others fear that it discourages companies from holding a cash reserve to see them through future crises.
For households, this would mean that they would earn little or nothing on their savings.
But pressure is mounting on Bank policymakers to push interest rates below their current record level of 0.1%, as data showed yesterday that inflation had almost halved from 1.5% in March to a low of 0.8% over four years. in April.
While falling inflation is good news for cash-strapped households, it can eventually dampen economic growth and prevent wage growth.
The Bank has an inflation target of 2%, designed to keep economic growth steady.
But as the lockdown and falling fuel prices have hampered spending, economists expect inflation to remain low for some time.
This sentiment echoed yesterday when the UK first sold negative yield bonds.
The government has raised £ 3.8 billion in the sale of three-year government bonds to deal with the crisis.
But their yield – how much investors will receive in interest payments relative to the price of the bond – was minus 0.003%, according to the Debt Management Office, a government agency.
This means that investors are paying to lend to the government, reflecting their desperation to keep money in assets considered safe.
The Bank is expected to strengthen its stimulus measures by increasing its £ 200 billion bond buying program by £ 100 billion at next month’s monetary policy committee meeting. This will inject more money into the economy.
But some economists suggest that the bank should lower its base interest rate below 0% by charging customers to deposit their money.
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