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BOE Examining Negative Rates, Haldane Tells Telegraph

Jim Silver and David Goodman
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BOE Examining Negative Rates, Haldane Tells Telegraph

(Bloomberg) -- The Bank of England is examining unconventional monetary policy measures more urgently amid the economic slump caused by the coronavirus pandemic, according to its Chief Economist Andrew Haldane.

The central bank is reviewing a number of policies -- including negative interest rates and expanding the scope of the bank’s asset-purchase plan to include riskier securities -- as it is running low on conventional easing space, Haldane said in an interview with the Telegraph. He stressed that the BOE isn’t poised to impose any of those polices imminently.

“It’s something we’ll need to look at -- are looking at -- with somewhat greater immediacy,” Haldane said when asked if borrowing costs could go below zero. “You mention negative rates, but there are other options beyond that, or alongside that, that we’re looking at as well.”

“With QE there is more we can do there on the gilt side and the corporate-bond side in principle -- as we’ve found from other central banks, you could purchase assets further down the risk spectrum,” he added. “I don’t want to imply we’re poised on any of those but we have over a number of years been reviewing all of our options for more, if more is needed.”

While the European Central Bank and other institutions have already cut rates below zero, the debate about the effectiveness of negative rates has gathered pace amid market speculation the Federal Reserve and BOE may have to follow suit to ramp up their response to the pandemic.

Future Fed Options

Fed Chairman Jerome Powell dismissed the prospect last week, though he didn’t fully rule out the option as a potential tool in the future. BOE Governor Andrew Bailey has made similar comments, saying that while negative rates weren’t something being contemplated, it was important not to rule anything out forever.

The BOE’s benchmark interest rate stands at 0.1% and taking it negative would present a communications challenge and prove difficult for banks, Bailey said. That, in turn, could undermine the BOE’s ability to influence borrowing costs across the economy.

The track record of negative rates “quite simply, is poor and provides plenty of circumstantial evidence that their damage to confidence and financial stability far outweighs the benefits,” Andrew Sheets, chief cross-asset strategist at Morgan Stanley, wrote in a note published on Sunday.

Haldane also warned that the U.K. is heading toward an unemployment crisis comparable to the one experienced in the early 1980s.

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(Updates with background on central-bank policy from fifth paragraph.)

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