(Bloomberg) — The Bank of England would have to examine certain aspects of negative rates when it comes to protecting the financial system but it’s also not ruling them out, according to policy maker Silvana Tenreyro.
Looking at Europe’s experience with negative rates, they “have had a positive effect in the sense of having a fairly powerful transmission to real activity,” Tenreyro said Monday. “There are some considerations that are more specific to the U.K. and will need to be worked out including the effect on some financial institutions, implementation, communication and so on.”
The European Central Bank and others have already cut rates below zero. The debate about the effectiveness of such a policy has gathered pace amid market speculation the Federal Reserve and BOE may have to follow suit to ramp up their response to the pandemic.
“For now, everything is on the table for us,” she said on an online seminar hosted by the London School of Economics.
Investors are now betting the U.K. will take borrowing costs below zero in December. Before Tenreyro’s comments, they saw such a move in February.
The idea seems to be gaining traction inside the U.K. central bank, at least as a longer-term option. Tenreyro’s comments follow those of the central bank’s chief economist Andy Haldane, who said in an interview published over the weekend that negative interest rates are something officials need to be looking at.
Still, there has also been some mixed messaging. Governor Andrew Bailey said last week that while negative rates weren’t being contemplated at the moment, it’s important not to rule anything out forever.
The benchmark rate now stands at 0.1%, and taking it negative could prove difficult for banks, he said, and potentially make it difficult to influence borrowing costs across the economy.
(Updates with market pricing from fifth paragraph)
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