Bank of England boss says ‘foolish’ to rule out negative UK interest rates
Bank of England governor Andrew Bailey has said it would be “foolish” to rule out cutting interest rates below zero and confirmed policymakers are actively reviewing its options to help see the economy through coronavirus.
Mr Bailey, who took over from predecessor Mark Carney in March, told MPs the Bank was not ruling in negative interest rates, but did not rule out any monetary policy action as a “matter of principle”.
In a hearing with the Treasury Select Committee, he said the Bank was keeping the outlook for how low UK rates could go – and other monetary policy tools available – under “active review”.
This includes the prospect of negative rates and the possibility of buying riskier assets under its so-called quantitative easing bond-buying programme.
Mr Bailey said: “We do not rule things out as a matter of principle.
“That would be a foolish thing to do. But that doesn’t mean we rule things in either.”
He added: “We know that we may have to draw on our tool kit at any point… having that whole tool kit under review and assessed as the context changes is important.”
But he said the Bank, which has already cut rates to 0.1% to help shore up the economy, believed the benefits weaken as rates approach zero and could even be “counterproductive”.
Policymakers are “looking carefully” at the experience of other central banks that have cut rates into negative territory, he said.
He also stressed communication surrounding negative rates was “absolutely critical”, given that it is “not a straightforward tool” for consumers to understand.
His comments come as negative interest rates have come into sharp focus in the UK after official figures earlier on Wednesday showed inflation plunging to a near-four-year low of 0.8% in April – far below the Bank’s 2% target.