BOE Not Considering Negative Rates Right Now, Bailey Says

(Bloomberg) -- The Bank of England isn’t currently considering lowering interest rates below zero, according to Governor Andrew Bailey, a day after the U.S. central bank chief also pushed back against the idea.

“It is not something that we are currently planning for or contemplating,” Bailey said during a web conference with the Financial Times on Thursday. Still, he added that “it’s always wise, and particularly in these circumstances, not to rule anything out forever.”

Negative rates would present a communications challenge and prove difficult for banks, Bailey said. That, in turn, could undermine the BOE’s ability to influence borrowing costs across the economy.

Investors have revved up bets that major central banks will need to loosen policy more to counter the massive economic shock inflicted by the coronavirus pandemic. After Bailey’s comments, money markets nevertheless pushed back bets on when the BOE will lower borrowing costs below 0% to June next year from May 2021.

The BOE has already cut rates twice since March to 0.1%, boosted its quantitative easing program and indicated more easing could be on the way. Like the U.S. Federal Reserve, however, it’s drawing the line at taking rates negative.

Fed Chairman Jerome Powell on Wednesday dismissed the prospect that the central bank would deploy negative interest rates in the U.S., though he didn’t fully rule out the option as a potential tool in the future.

The crisis has plunged the U.K. economy into what may be its deepest recession in more than three centuries. With the U.K. government raising its debt issuance to fund support for the economy, and the BOE buying so much of it, there have been accusations of a blurring of fiscal and monetary policy lines.

U.K. government borrowing will likely exceed 300 billion pounds ($366 billion) in the current fiscal year, according to the latest forecasts from the nation’s fiscal watchdog, as the government spends more on supporting the economy and workers’ wages.

Bailey denied that the central bank was improperly funding the government, saying “classical and classically extreme notions of monetary financing isn’t going on at all.”

He also defended the enormous stimulus that central banks have implemented in response to the crisis, but he was clear that the huge expansion of balance sheets since 2008 will ultimately have to be examined.

Central banks must think about “what’s the right sort of term for this intervention, how should the central bank be managing its balance sheets?” he said. Still, “I’ve no question in my mind that what we’re doing is the right thing to do.”

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