MNI INSIGHT: BOE Still To Draw Up Negative Rates Questions

The Bank of England has yet to even draw up questions for its Q4 consultation with stakeholders about the feasibility of negative interest rates, and apparently divergent comments from Monetary Policy Committee members were all in line with the current BOE approach, MNI understands.

Any cut below zero remains a long way off, as emphasised Tuesday when Governor Andrew Bailey again said that while negative rates are in the toolbox, there had been no judgement yet "on whether and when we would use them".

Remarks to the Sunday Telegraph by MPC member Silvana Tenreyro and an interview with Dave Ramsden, BOE Deputy Governor for Markets and Banking, relayed on the Society of Professional Economists' website, were portrayed as respectively warmer and cooler on negative rates. But neither departed from the committee's approach and shared analysis.

Ramsden, seeming to downplay the possibility, pointing to the MPC seeing the current effective lower bound at 0.1%, but clarified his thinking by adding "at present".

Tenreyro told the Telegraph that the evidence on negative rates where they had been introduced was encouraging, with banks adapting and overall profitability rising. Even Ramsden, asked whether negative rates had hit banks, said that in some cases they had not.

"There are jurisdictions where … the empirical evidence suggests that they have had a more positive effect," he said.

UK FINANCIAL SYSTEM

To date, the BOE has relied in large part on shared research with the ECB and the BIS on negative rates, but will now focus on issues in the UK. The country's ring-fenced banks and popular building societies rely heavily on deposit funding, raising the prospect of a squeeze in net interest margins should deposit rates stay positive.

Fears over building societies have in the past weighed on the Bank's thinking about the lower bound. But, given time, funding models can change.

Ramsden suggested the BOE might not impose negative rates during the Covid-related downturn but perhaps act further down the line as recovery takes hold, when banks might be suffering less from souring loans.