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Free AccessMNI POLICY: BOE's Tenreyro-Negative Rates Working In Europe
-Specific Financial Issues For Setting Negative Rate In UK
By David Robinson
LONDON (MNI) - Every policy option is on the table for the Bank of England,
said Monetary Policy Committee member Silvana Tenreyro, adding that she thought
negative interest rates had been successful in continental Europe.
The MPC so far has cut Bank Rate to 0.1% but has not taken the further step
of going negative. Tenreyro, at a London School of Economics event, acknowledged
that further work was needed before the MPC could implement negative rates, a
point made by BOE Governor Andrew Bailey.
The following are points from Tenreyro comments in the LSE webcast and
question-and-answer session:
-Asked if the MPC was considering setting a negative policy rate Tenreyro
said "The MPC has not ruled out any policy tool and, as always, we will be
evaluating the pros and cons of different policy actions and their effectiveness
in different phases of the crisis."
"My personal view, which comes from the reading of the 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.
She stressed that there were other considerations for the UK including the
effect on financial institutions and the communications that would be required
before moving into negative territory.
-The policy response going forward would depend on which of many plausible
scenarios unfolded and the more to the downside the longer stimulus would need
to be in place.
"There will be major challenges in setting economic policy if the fall in
economic activity proves to be very persistent," she said.
-The Covid-19 crisis was likely to exacerbate wealth inequality and this
could reduce the effectiveness of monetary policy.
Lower income households would be less able to take on debt, she said,
adding that she was assuming "higher wealth individuals maintain lower marginal
propensities to consume."
-Tenreyro also warned of negative spill-overs into sectors not directly
effected by the lockdown if health risks remained elevated, as activity declines
in the hardest hit sectors feed through into the wider economy.
--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com
[TOPICS: M$B$$$,M$E$$$,M$$BE$]
To read the full story
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Please enter your details below.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.