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Negative interest rate looms to help economy

Bank of England

Bank of England may take further action (pic: Terry Murden)

A negative interest rate could help the British economy recover from the downturn caused by the coronavirus, according a Bank of England policymaker.

Silvana Tenreyro, who sits on the Bank’s monetary policy committee (MPC), said cutting the rate below zero – meaning borrowers are credited interest on loans – was among options the nine-member committee is considering.

The Bank has responded so far to the coronavirus pandemic by cutting the interest rate to a record low of 0.1% and expanding its asset purchase programme by £300bn.

Ms Tenreyro told the Sunday Telegraph that evidence from the eurozone and Japan showed that cutting the interest rate below zero had succeeded in reducing companies’ borrowing costs and did not make it unprofitable for banks to lend.

“Banks adapted well – their profitability increased with negative rates largely because impairments and loss provisions have decreased with the boost to activity and the increase in asset prices,” she said.

Tenreyro said she expected Britain’s rebound from the 20% drop in GDP in the second quarter to lose pace as coronavirus cases rise across the country. 

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