BOE’s Tenreyro Sees ‘Encouraging’ Evidence on Negative Rates
Silvana Tenreyro, professor at London School of Economics and member of the monetary policy committee at the Bank of England. (Photographer: David Paul Morris/Bloomberg)

BOE’s Tenreyro Sees ‘Encouraging’ Evidence on Negative Rates

The Bank of England’s discussions on negative interest rates have been “encouraging,” according to policy maker Silvana Tenreyro, in a sign that the U.K. could yet follow peers such as the European Central Bank below zero.

“There has been almost full pass-through of negative rates into lending rates in most countries,” Tenreyro said in an interview with the Telegraph published late Saturday. “Banks adapted well.”

Her remarks come days after BOE Governor Andrew Bailey played down the prospect of such a policy any time soon. He said it is in the toolbox but that “doesn’t imply anything about the probability of us using” it. Investors pushed back bets on a rate cut after his comments.

Still, the U.K. economy is under mounting pressure that could yet force the BOE’s hand. Rising coronavirus infections have prompted the government to impose new social restrictions, and changes to the wage-support programs have failed to calm concerns that the nation is headed for an unemployment surge.

At the same time, talks on a trade deal with the European Union before a Dec. 31 deadline to leave the single market are in trouble.

Most economists expect the BOE to increase its bond-buying program later this year, and investors still see a rate cut next year.

Recovery in Doubt

Tenreyro said the BOE needs to study the likely impact of Chancellor Rishi Sunak’s new job support program, but reiterated her view that the strong economic upswing over the summer after lockdowns ended -- the so-called V-shaped recovery -- will falter.

“Flare-ups like we’re seeing may potentially lead to more localized lockdowns and will keep interrupting that V,” she said. “Another factor interrupting the V is a very weak global outlook, with high uncertainties, particularly with a second wave already striking many countries.”

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