Tenreyro: Evidence On Negative Rates “Has Been Encouraging” (Telegraph)

A weekend piece in the Telegraph covered comments from Bank of England MPC member Tenreyro.

• "The Bank has opened formal talks with lenders about the real-world challenges of negative rates, stoking market speculation that the financial system could be about to enter the twilight zone. For Silvana Tenreyro, an external member of the Bank's Monetary Policy Committee, there would be nothing to fear. "We have been discussing our toolkit in recent months, including how effective negative rates might be in the current context," she says. "The evidence has been encouraging." Nodding to other central banks that have already taken the plunge, such as the European Central Bank and the Bank of Japan, she adds: "There has been almost full pass-through of negative rates into lending rates in most countries." "Banks adapted well – their profitability increased with negative rates largely because impairments and loss provisions have decreased with the boost to activity and the increase in asset prices." What's changed, she argues, is that the global interest rate needed to maintain the balance between spending and saving – the so-called "equilibrium interest rate" – has fallen as a result of factors over which monetary policy has little control, including demographics and lower productivity."
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