LONDON (Reuters) – Bank of England official Silvana Tenreyro on Monday talked up the benefits of negative interest rates, in comments likely to fuel expectations that Britain might one day take borrowing costs sub-zero to prop up the economy.
“The (Monetary Policy Committee) has not ruled out any policy tool,” interest rate-setter Tenreyro told a London School of Economics webinar.
Central banks elsewhere in Europe and in Japan have tried negative interest rates with mixed results. The idea is to discourage banks from holding excess cash and to encourage lending, boosting business investment and consumer spending.
“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.
Tenreyro added that there would be specific considerations for Britain given its large financial sector.
BoE officials have previously expressed objections to taking rates below zero – as the central banks of the euro zone and Japan have done – because it might hinder the ability of banks in Britain to lend and hurt rather than help the economy.
But money markets on Monday ramped up expectations of negative interest rates after the BoE’s chief economist said it was looking more urgently at options like negative rates and buying riskier assets as Britain slides into a deep coronavirus-driven slump.
(Reporting by Andy Bruce and Costas Pitas)
