- External MPC Member Refuses to Be Drawn on Negative Interest Rates
- By Laurie Laird
LONDON (MaceNews) – A Bank of England rate setter has urged the Monetary Policy Committee to commit to further asset purchases at its upcoming meeting, but refused to be drawn on the possibility of negative interest rates in the UK.
Addressing a webinar organized by the UK central bank, external MPC member Michael Saunders noted that incoming economic data are likely to confirm the need for further monetary accommodation and “that it would be preferable to remove uncertainty about the MPC’s willingness to expand asset purchases further.”
A commitment to further QE is crucial, even though the current programme will not be exhausted before the MPC meets on June 18th, according to Saunders The Bank announced an emergency £200 billion asset purchase programme in March, accompanied by two emergency rate cuts, leaving the base rate at a record-low 0.1%.
Saunders declined to shed further light on the possibility of sub-zero interest rates in the UK, after BOE Governor Andrew Bailey last week revealed that the MPC has begun to actively consider the policy, a reversal of the governor’s earlier position.
“I don’t have anything to add to the comments made by the governor … I wouldn’t rule it out. That doesn’t necessarily mean that I would rule it in either,” he said. The Bank has reviewed the efficacy of negative rates, particularly the level at which such policy becomes “counterproductive,” on numerous occasions since the financial crisis, he added.
However, Saunders noted that the UK neutral interest rate had been falling even before the shock of the coronavirus. “Headwinds associated with [Covid] seem to have put further downward pressure on the neutral rate of interest rates, such that the need to take account of the limited extent of monetary policy space is even more pressing.”