Bank of England (BoE) rate-setter Jonathan Haskel sees some possible benefits from cutting interest rates below zero, though it was too soon to reach a firm conclusion on this.
The BoE, which cut interest rates to a record-low 0.1% in March, is now looking at whether it is technically feasible to cut its main interest rate below zero, something that has already been done in Japan and the euro zone.
The Bank of England’s chief economist, Andy Haldane, and one of its deputy governors, Dave Ramsden, have expressed doubts about whether this would be helpful, but one external policymaker, Silvana Tenreyro, has been more supportive.
Haskel, like Tenreyro, said evidence from the European Central Bank suggested that cutting interest rates below zero could boost lending, and that banks did pass negative rates on to businesses, though not to households.
“(There is) some very, very good work there which … suggests some positive evidence that negative rates have benefited the economy,” he told an online audience at the Barclays Global Inflation Conference.
“That said, the effectiveness is probably going to be contingent on the structure of the financial system and the position where we are in the cycle, so we have to look at that very carefully.”
Haskel said he saw downside near-term risks to both growth and inflation in Britain, and that he expected demand for things such as eating out to be sensitive to increases in the number of COVID-19 cases, which are currently rising rapidly in Britain.
“I stand ready to vote for more stimulus measures should they be needed,” he said, echoing recent guidance from the BoE.
He said COVID was likely to damage measured productivity in Britain in the medium term, as the costs of health measures taken to contain it by the government and the private sector would be easier to measure than any gains.