Bank of England and the option of negative interest rates

The Bank of England (BoE) today kept interest rates at 0.1% and its bond purchase program at GBP 895 billion. (Tera Yatırım)

The Bank of England (BoE) today kept interest rates at 0.1% and its bond purchase program at GBP 895 billion. The MPC took the interest rate decision unanimously, although several members had previously expressed their interest on negative interest rates. In addition, BOE, which conducts a feasibility study for negative interest rates, announced that it will take six months for banks to prepare if negative interest rates are introduced. This does not mean a sharp change in policy, and serves as a warning for banks to adjust capital conditions to negative interest rates.

 

Like all major economies, the picture for the UK is unclear, but measures to protect against epidemic effects remain valid. So in fact, new policy moves seem to depend on the responses of households, businesses and financial markets. Negative interest rates were an issue that was generally avoided before that. Overall, MPC members believe negative rates will do more harm than good and have so far refused to take this path.

 

GDP is expected to recover rapidly to pre-virus levels in 2021, and inflation is expected to rise quite sharply towards the 2% target in the spring. However, the BoE stated that it does not intend to tighten monetary policy at least until there is clear evidence of significant progress in achieving the 2% inflation target in a sustainable way. There is still another ground for major central banks to tighten, they may still need additional monetary measures. The implementation of negative interest rates on the BOE side and the ECB's deepening of negative rates will continue to be a matter.

 

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