The Bank of England’s governor, Andrew Bailey, has spoken of negative interest rates as being “in the tool bag”. Monetary Policy Committee (MPC) member Silvana Tenreyro says that the evidence for negative interest rates is “encouraging”. Yet Dave Ramsden, another MPC member, this week cast doubt on the idea that rates could fall below 0.1% without the policy backfiring.
Negative rates are supposed to stimulate bank lending by charging banks fees for any cash they leave stashed in their accounts at the Bank of England, says Ruth Sunderland in the Daily Mail. It remains an open question whether the banks would dare pass along negative rates to their own customers. Sweden’s central bank was the first country to experiment with a negative interest rate in 2009 when it began to charge banks interest on overnight deposits. Its headline interest rate went negative in 2015. The European Central Bank cut its deposit rate to -0.1% in 2014, followed by Switzerland the following year. The Bank of Japan cut its key rate to -0.1% in 2016. Negative rates have an underwhelming record as a stimulus measure. They have done little to remedy chronically weak inflation in the eurozone and Japan, says Brian Blackstone in The Wall Street Journal. They seem to have little effect on the amount that people choose to save and spend. Negative rates have also meant a miserable decade for European bank profitability.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
-
Rail fares to be frozen for first time in 30 years – how much could you save?Chancellor Rachel Reeves will use her Budget to freeze rail fares but the savings could be offset by tax rises
-
Circle sets a new gold standard for cryptocurrenciesCryptocurrencies have existed in a kind of financial Wild West. No longer – they are entering the mainstream, and US-listed Circle is ideally placed to benefit
-
More clouds gather over renewable energy trusts – is there any hope for the sector?The outlook for renewable energy trusts has gone from bad to worse this year, with the industry being caught in a 'perfect storm'
-
Should ISA investors be forced to hold UK shares?The UK government would like ISA investors to hold more UK stocks – but many of us are already overexposed
-
Why Scotland's proposed government bonds are a terrible investmentOpinion Politicians in Scotland pushing for “kilts” think it will strengthen the case for independence and boost financial credibility. It's more likely to backfire
-
How Germany became the new sick man of EuropeFriedrich Merz, Germany's Keir Starmer, seems unable to tackle the deep-seated economic problems the country is facing. What happens next?
-
Defeat into victory: the key to Next CEO Simon Wolfson's successOpinion Next CEO Simon Wolfson claims he owes his success to a book on military strategy in World War II. What lessons does it hold, and how did he apply them to Next?
-
How to find value in Asian small cap stocksThree competing Asian investment trusts all have good records, but this one is the obvious choice at present, says Max King
-
The battle of the bond markets and public financesAn obsessive focus on short-term fiscal prudence is likely to create even greater risks in a few years, says Cris Sholto Heaton
-
'Rachel Reeves’s tax rise will crash the economy'Opinion Rachel Reeves will be the first chancellor since Denis Healey in the 1970s to raise income tax. It will only push Britain into recession, says Matthew Lynn
