— External MPC member Tenreyro makes strong case for negative interest rates in the UK
By Laurie Laird
LONDON (MaceNews) – The rapid development of a Covid vaccine could actually strengthen the case for expanded quantitative easing in the UK, with the benefits of a jab likely to lift the economy only gradually, a Bank of England rate setter said Monday.
The distribution of inoculation makes it “even more essential that we avoid” removing liquidity from financial markets, to ensure that support already provided to cash-strapped firms “is not a bridge to nowhere,” said Silvana Tenreyro, an external member of the Bank’s Monetary Policy Committee, addressing an online conference hosted by the Resolution Foundation. Tenreyro said her “rationale” for supporting an expansion of the Bank’s Asset Purchase Programme earlier this month was to “reduce the risk” of financial market “tightening.”
Tenreyro, one of the more dovish MPC members, also reiterated her support for negative interest rates, citing evidence from Europe suggesting that negative interest rates have “been very effective in boosting” the economy. “The lending channels of the transmission of monetary policy has worked” in jurisdictions that have implemented sub-zero rates, she said.
Tenreyro brushed aside concerns that sub-zero rates could damage bank profitability, stressing that stronger economic growth far outweighs the downside of slimmer lending margins.
The Bank of England has asked banks to assess their technical capability to process negative rates, but has not committed to implementing the policy in the U.K. The Monetary Policy next meets on 16 December.