Wednesday, October 21, 2020

BOE ‘Risk’ Negative Interest Rates! Is This A Good Sign?

 Deputy Governor Dave Ramsden on Wednesday came forward to voice his views on the appropriate interest rates for Britain where the country's economy is being plagued by trade issues and the worsening Covid-19 epidemic. At the same time, Britain's central bank is also reviewing interest rates below zero to implement if necessary.

According to Ramsden, reducing interest rates below zero is risky and could undermine British banks' ability to lend and currently this policy is not the right tool for the Bank of England (BoE) to stimulate the economy. Ramsden noted that he was more inclined to move asset buying, arguing it could increase demand.

Based on a Reuters questionnaire, economists expect the BoE to expand its asset purchase program by 100 billion pounds next month to 845 billion pounds but do not expect the rate to be below zero this year.

Last August BoE Governor Andrew Bailey stated that the central bank was considering negative interest rates in line with the policies adopted by the European Central Bank and the Central Bank of Japan.

Ramsden objected that negative interest rates could reduce bank incentives to lend. Finally, he expressed concern that the unemployment rate would be higher and the impact of the pandemic would be prolonged.