BoE deputy says the ‘time is not right’ for negative interest rates : CityAM

High levels of economic uncertainty and a bruised banking system mean now is not the time to experiment with negative interest rates, a deputy governor of the Bank of England has said.Sir Dave Ramsden today struck a more cautious tone on the novel monetary policy than his colleague Gertjan Vlieghe did yesterday. Vlieghe said he thought the risk that negative rates would be counterproductive “is low”.Read more: BoE policymaker: New Covid slowdown could require more stimulusThe Bank slashed interest rates to a record low of 0.1 per cent to support lending during coronavirus. And it has pumped hundreds of billions of pounds into the economy through its bond-buying programme, known as quantitative easing (QE).With rates close to rock-bottom and the future of the economy uncertain, the Bank added negative interest rates to its “toolbox” of possible measures in August. Yet governor Andrew Bailey has said it does not plan to use them any time soon.Ramsden today reiterated that message in a virtual speech to the Society of Professional Economists.“While there might be an appropriate time to use negative rates, that time is not right now,” he said.The deputy governor for markets said he had two main worries. One was that a further interest rate cut may not be successfully passed on.Ramsden said: “Other countries’ experience suggests that while corporate deposit rates can turn negative, household deposit rates would be unlikely to fall below zero.”He said this would mean that “pass-through could be somewhat weaker than for a normal rate cut”.Negative interest rates may hurt banksHis second major concern was that cutting rates could hurt bank profits. Lenders may have to cut the interest they receive on loans but would struggle to cut deposit rates, Ramsden said.“Banks can offset the impact on profitability by not reducing lending rates,” Ramsden said. “But in doing this they would further reduce the amount of stimulus provided.” Ramsden said that negative rates are therefore not the right policy for the current moment. “The economy and the financial system are already grappling with the effects of an unprecedented crisis,” he said.The deputy governor’s caution contrasted with the more positive view of BoE monetary policy committee member Vlieghe yesterday. Vlieghe said he thought the risks were “low”. “Since it has not been tried in the UK, there is uncertainty about this judgment, and the MPC is not at a point yet when it can reach a conclusion on this issue.“But given how low short-term and long-term interest rates already are, headroom for monetary policy is limited, and we must consider ways to extend that headroom.”Read more: Banks not ready for negative interest rates, says Natwest chairmanAnalysts polled by Reuters think the Bank will add £100bn to its bond-buying programme next month.Ramsden today said the BoE has “QE ‘headroom’ remaining”. He backed it as a “tried and tested” policy.