The city veteran said once negative rates are imposed it might be difficult to return to more normal monetary policy.
He said: “Economies are interconnected, and low or negative rates have become the norm in developed economies, especially in Europe, and it is virtually impossible for a single economy to deviate significantly.
“The problem at one point is how to raise tariffs without massive upheaval.”
Mr McFarlane, 73, is now chairman of Australia’s Westpac bank, but was speaking in his personal capacity.
He suggested that widespread fears in the industry about the impact of negative rates on bank stock prices are justified.