Negative Rates Aren’t a Near-Term Reality for BOE, Hauser Says

(Bloomberg) -- Negative interest rates don’t appear to be a near-term prospect in the U.K., according to Bank of England Executive Director for Markets Andrew Hauser.

“It’s not a near-term reality, I don’t think,” Hauser said in a webinar event with Bloomberg on Thursday. “There’s practical challenges of doing it, even if you thought it was the right thing to do, it’s not going to happen in the near-term.”

While Hauser does not have a vote on the rate-setting Monetary Policy Committee, his comments add to a growing debate at the central bank on whether borrowing costs should go below zero in order to combat the economic fallout from the coronavirus. Governor Andrew Bailey and other policy makers have refused to rule out such a policy, and have said they are reviewing their options.

Still, most officials have also indicated a move below zero isn’t imminent, and market bets on the policy are fading. Investors are currently pricing in rates staying above zero until well into 2021 -- compared with pricing for a move later this year last month.

The BOE is looking at evidence on the impact of negative rates from the euro area and the Bank of Japan, Hauser said. In the U.K., one risk is sub-zero borrowing costs could damage bank profits already weakened by the pandemic.

“It is natural I think, as the governor has said, that we should start to look at, the pros and cons of taking interest rates further down towards zero or possibly negative,” Hauser said. “There are arguments very strongly on both sides.”

©2020 Bloomberg L.P.

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