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.
There is evidence that negative rates reduce lending costs, but diminishing returns set in quickly. The debatable rewards of the policy should be set against the significant downside risks: inflated asset bubbles and damage to banks and pension funds, says James Mackintosh in The Wall Street Journal. Note that Sweden last year ended its negative interest-rate policy.
Subscribe to 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
-
Four income funds to add to your ISAAdding one of these four income funds to your stocks and shares ISA ahead of tax year end could pay dividends
-
Are regular savings accounts worth it?A 7% interest rate is eye-catching, but how much can you save in a regular saver account and how does the interest rate work exactly?
-
England's department stores return – but do they have a future?Opinion The great traditional retail shops of Middle England have bounced back for now. Don’t get too carried away though, says Matthew Lynn
-
Labour's 'Project Chainsaw' begins by abolishing NHS England – will it backfire?Keir Starmer is taking the fight to the blockers, the NIMBYs, public sector workers and the unions says Emily Hohler. What happens if Labour fails to deliver?
-
Walgreens Boots Alliance sold to private equity firm - will Boots get the boot?US pharmacy giant Walgreens Boots Alliance is going private. Will the new owners sell off the high-street chemist?
-
Is Rachel Reeves leading the UK to a spring crisis?Opinion Rachel Reeves is sleepwalking into an economic catastrophe of her own making. Don’t expect a change of direction, says Matthew Lynn
-
Heathrow's third runway cleared for take-off – but will it boost growth?Heathrow Airport will finally get its third runway but critics argue a bigger Heathrow isn't the answer to boosting growth.
-
Labour is throttling business - a change of direction is needed, says Matthew LynnOpinion Will the last major global business to leave Britain please turn off the punishingly expensive lights?
-
Has inflation been tamed in the UK?After a surprise drop in inflation, the Bank of England is set for more rate cuts in the year ahead. But investors are cautious about pricing in too many cuts
-
Why is the UK's economic growth falling behind?Poor economic growth and productivity in the UK is due to several factors that are our own fault, says David C. Stevenson
