The Bank of England deputy governor has warned against negative interest rates which would lower the cost of borrowing below zero.
In a webinar speaking to the Society of Professional Economists, Sir Dave Ramsden said that at present negative policy rates would be “less effective as a tool to stimulate the economy”.
Last month, the BoE stated that negative interest rates were “part of the toolbox”, in a bid to salvage the UK economy after Covid-19 fallout. The bank currently is keeping interest rates at just 0.1%, a record low.
If interest rates are to drop to below zero, it would encourage banks to lend money to businesses rather than deposit it as the BoE would charge for any deposits it holds.
As reported by the BBC, Ramsden said: ”If you’ve got negative rates in the toolbox, I feel duty bound, given my duties at the bank, that you’ve then got to explore in more detail the operational considerations which would go with implementing negative rates.
He added: “You don’t want to be in the position where you’ve said you think you could use them, then say at some point in the future, the committee concludes actually we should use them, then you go back and look in the toolbox, and find that actually you can’t use them for an operational reason.”