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Will the BOE Cut Rates Into Negative Territory?

Will the BOE Cut Rates Into Negative Territory?

Posted Monday, May 18, 2020 by
Arslan Butt • 1 min read

Amid the raging coronavirus pandemic, the Bank of England has hinted at the possibility of moving rates into negative territory to combat the damage on the British economy. BOE’s chief economist Andy Haldane made these remarks during a recent interview with The Telegraph, adding that such an option could not be ruled out.

Haldane added, “The economy is weaker than a year ago and we are now at the effective lower bound, so in that sense it’s something we’ll need to look at – are looking at – with somewhat greater immediacy.”

He also suggested that the BOE could increase the scope of its bond purchase program to buy up lower quality financial assets, like the Fed has undertaken. While officials from the central bank have previously rejected the idea of negative interest rates, the present rate of 0.1% is not enough to prevent the British economy from slipping into a severe recession due to the pandemic.

Even as the BOE governor Andrew Bailey also plays down the possibility of negative interest rates, most economists expect the central bank’s to expand its QE efforts as the next step in helping the economy. Haldane suggested increasing purchase of gilt and corporate bonds as possible options being considered.

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