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BofE deputy governor floats negative interest rates

The Bank of England’s deputy governor Paul Tucker says the monetary policy committee has discussed the idea of negative interest rates.

Tucker told MPs at a Treasury select committee hearing today that he has raised the idea in the past but that it is an “extraordinary thing to do” and requires careful consideration after he was asked about the range of possible monetary instruments the monetary policy committee has reviewed.

He said: “I hope we will continue to think about whether there are constraints to setting negative interest rates. This is an idea that I have raised. This would be an extraordinary thing to do and it needs to be thought through very carefully.”

He added that it was “not something anyone should clutch on to as the answer to the universe”.

The base rate has remained at 0.5 per cent since March 2009. Tucker also touched on the possibility of bringing the rate down to zero, noting the potential risk this presents of making things harder for building societies and small lenders.

The members of the MPC unanimously voted to keep the rate at its current level earlier this month, while Mervyn King, Paul Fisher and David Miles all voted in favour of increasing the QE programme to £400bn from £375bn.


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. What a daft Idea, He is presumably talking about what the Bank pays on the liquidity money banks deposit in Special reserve accounts, this would cripple weaker banks.

    Much better to widen the range of bonds that the Bank buys in its QE programme. Buying bonds from housing associations and other property investment outfits woudl inject some demand back inot the economy.
    Chucking bundles of tenners out of a helicopter would put demand back inot the economy , though not much as I think most people would rather save than spend in the current climate. If that’s where Tucker sees negative interest rates coming inot play- discouraging thrift and encouraging consumption I’m afraid he’d be in for a nasty shock. All it would achieve is a flight out of bank deposits and inot peer to peer lenders , gold, eqiuties and anything else that might be a store of value.. Back to the drawing board Paul!!

  2. So what this guy is actually saying is that if the Bank of England lent one million pounds to an institution a year later, that institution would pay no interest and the capital would have reduced by £2,500 if the negative interest rate was 0.25%.

    I thought deflation was just as bad as inflation, we really are living in crazy times if this is actively being considered.

    If this is really being considered the pound will go through the floor and we won’t have to worry about deflation, what we will have to worry about is hyperinflation as petrol, food and everything will go through the roof.

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