The BoE asks banks how much they are prepared for negative rates

The BoE asks banks how much they are prepared for negative rates

The Bank of England on Monday took further steps towards introducing zero or negative rates as a means of supporting the UK economy, adding in a recent mixed message about its policy objective.

Following a commitment made by the central bank’s monetary policy committee in August, the BOE wrote to banks asking them to fill out a form stating their readiness to deal with zero or negative bank rates.

Boeing said it is taking the step to “evaluate the suitability of a negative official bank rate with all its tools”. Sterling fell 0.24 percent on Monday morning.

While the move was flagged by the BoE, it could lead to more uncertainty about its position on negative rates. In late September, BoE Governor Andrew Bailey said it had not yet reached an agreement on negative rates, leading to criticism from some economists who argued that this was evidence that the central bank did not have a clear policy on the issue.

It is important for banks, Prudential Regulation Authority (PRA) and companies to understand the implications of these potential approaches to applying zero or negative bank rates, as MPCs may seem appropriate to choose different options depending on the situation. Time, ”Sam Woods, deputy governor and chief executive of the PRA, wrote in the letter.

The UK’s central bank clarified that the letter “does not indicate that this [Monetary Policy Committee] A zero or negative policy rate will provide employment.

It also noted that the collection of information “does not ask companies to start taking action” to ensure that they are functionally prepared to apply negative bank rates. It added that it “seeks to prevent any unwanted operational disruption” that could be associated with a further reduction in interest rates.

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It is a matter of concern for BEOs that banks had the “technical capabilities” to meet the challenges of potential implementation of zero or negative rates.

The purpose of the letter was simply to gather information on the readiness of banks for possible policy rate changes, while “bank and PRA will take into account the broader business implications, including financial stability, security and safety of authorized companies, and pass-through,” he said.

Interest rates in the UK have fallen to historically low levels since the 2008 global financial crisis. The BOE policy rate is 0.1 percent. Some large central banks have introduced negative interest rates as an additional tool to stimulate the economy, including the European Central Bank and the Danish Central Bank.

However, unlike the only BoE policy rate, the ECB is using a tiered system with which it has “created a way to protect the entire banking system from completely negative rates”, said investment economist David Owen. Bank Jefferies.

Bancos must respond to requests for information by Thursday, November 12, following the announcement of the next monetary policy.

Analysts expect Boeing to step up its bond-buying program at a meeting on November 5 in a bid to further support the UK’s fragile economic recovery.

Pressure from the BoE to take further action increased last week as data showed that UK economic growth slowed in August before the rise in infection in September and the tightening of sanctions.

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