MNI POLICY: Haldane: BOE Reviewing, Not Doing, Negative Rates

--Haldane: Expect Negative Rates To Impact Bank Margins 

By David Robinson

     LONDON (MNI) - Bank of England Chief Economist Andy Haldane further

dampened speculation that a move to negative interest rates was likely in the

near-term, saying policymakers in Threadneedle Street were reviewing policy

tools but not near taking action on sub-zero rates. 

     In a question and answer session at a CBI and Tortoise media event Tuesday,

Haldane noted the flurry of media speculation around the possibility of negative

rates, reminding the Bank had consistently said its approach to these issues "is

not to rule anything out." 

     The following are further points from Haldane: 

     -Haldane added that the BOE was reviewing all its options. He set out a

couple of the key issues that the Bank was considering in assessing the likely

effectiveness of setting a negative policy rate, namely the impact on banks'

margins and the impact on confidence. 

     "Key factors for us in the context of that review will be 'What will the

consequences be of a further lowering of rates into negative territory for the

financial sector? We would expect that to cause some squeeze on the margins

between their lending and deposit rates," he said. 

     The second key criteria was "How would such a move effect confidence in the

economy?" 

     -He made clear that a move to negative rate was not imminent saying "To be

clear reviewing and doing are different things. And currently we are in the

review phase, and have not .. reached remotely yet .. the doing." 

     -In other remarks he said that the latest data showed signs of

stabilisation of the spending front. Expenditure numbers were "a shade better"

than the BOE had expected but he said that there was no evidence of joblessness

stabilising. Haldane also said that second quarter GDP was set to show a record

breaking fall, of 20% plus on the quarter. The BOE's forecast in its Monetary

Policy Report was for a 25% fall. 

     -Haldane said that a primary aim on the policy front was to avoid John

Maynard Keynes "paradox of thrift" under which business and consumers rein back

on spending, creating a downward spiral.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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