(Bloomberg) – Bank of England chief economist Andy Haldane has said a negative interest rate analysis will likely take months, strengthening the central bank’s resistance against speculation about the impending interest rate cuts.
Haldane said on Wednesday that the BOE’s decision to consider how to bring the benchmark below zero was not a signal on the likelihood of that happening. The comments come a day after Governor Andrew Bailey said the central bank had not passed judgment on whether or not to introduce the policy.
Once the work is completed, “judgments on negative rates will depend on the current economic outlook and in particular on whether or not further monetary stimulus is needed,” Haldane said in a speech.
The other factor, he said, is “whether the balance of costs and benefits of using this tool were positive and whether this cost / benefit ratio favored negative rates over other monetary tools.” This echoes a point made by Bailey about side effects due to the size and structure of the UK financial system.
Speculation on negative rates has boomed for months, but has intensified since the BOE announced it would consider the operational implications of such a move. Bailey has since said the BOE was only “laying the groundwork” on a potential future tool, without making any commitments.
Other factors playing into the discussion are the resurgence of the coronavirus, rising unemployment and the potential for a messy Brexit.
A number of policymakers have rejected the idea that action on interest rates is imminent. However, external member Silvana Tenreyro said banks “have done well” in other countries and the evidence is “encouraging”.
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