UK rates “quite possible”: BOE’s Ben Broadbent

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Simon Dawson | Bloomberg via Getty Images

The UK could head for negative interest rates at the next Bank of England monetary policy meetings, according to Deputy Governor Ben Broadbent.

The BOE’s Monetary Policy Committee (MPC) voted to keep interest rates at an historic low of 0.1% last Thursday, after having cut rates twice by 0.75% since the start of the coronavirus pandemic.

“The committee is certainly ready to do what is necessary to carry out our mission with risks always going down,” Broadbent told CNBC on Tuesday.

“Yes, it is entirely possible that further monetary easing may be required over time. “

In addition to the previous two rate cuts, the Bank also announced further quantitative easing (QE) of £ 200 billion ($ 247.55 billion), bringing its bond buying program to £ 645 billion in total.

Broadbent said the potential for stimulating demand should be weighed against the impact on banks’ ability to lend, adding that “this has been an issue that has been considered from time to time since the financial crisis.”

Banks to continue lending

Broadbent told CNBC “Street Signs Europe” that MPC’s decision that rates could fall as low as today is based in part on stronger balance sheets for banks and mortgage lenders only after the global financial crisis of 2009. This would avoid the risk of doing “more harm than good” by discouraging financial institutions from lending.

Negative rates have been criticized by the financial community for forcing lenders to park money at the central bank and hurting profits.

“This does not mean that we stop thinking about this issue, but that this is where rates have gone down,” he added.

Broadbent reiterated Governor Andrew Bailey’s suggestion that it is in the interests of the economy and the banks themselves to increase the supply of credit.

“There was a great need for businesses to be able to overcome themselves with all the support that can be provided by both the government and the banks,” he said.

He added that the risk that some companies would enter the crisis with overburdened excessive debt was more than offset by the risk that “good companies don’t get enough funds”.

BOE does not “finance government”

Broadbent has also sought to dispel suggestions that the BOE’s quantitative easing program is funding the government’s budget response to the coronavirus pandemic, stressing that bond purchases are simply for the purpose of Bank inflation.

“It is not surprising when you have a huge blow to the economy, as it is now, as it was in 2009, that you see both fiscal and monetary easing”, a- he declared.

“This is the link – they are both responses to a weaker economy. One does not respond to the other. “

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