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M&G’s Woolnough: G7 on brink of sub-zero interest rates


There is a real possibility that sub-zero interest rates could be seen in the G7 nations, M&G fixed income manager Richard Woolnough argues.

Woolnough, manager of the £8bn M&G Optimal Income fund, says there is a “potential for a major investment climate change” as developed markets’ monetary policymakers start to experiment with below zero interest rates.

“Many G7 economies have implemented very low rates and quantitative easing for a number of years, yet still appear to be in the economic doldrums with high unemployment, low growth and limited fiscal room,” he says. “It could now be time for a significant change in the investment text book as central banks experiment with rates below zero.”

The manager says sub-zero interest rates could be stimulative from a central bank’s point of view, as they would discourage saving and encourage consumption in the same way as a normal interest rate cut. Furthermore, they create the possibility of exceptionally low, zero or negative borrowing rates at the extreme.

Central banks including the Bank of England have come under growing pressure to lower rates even further in the lacklustre growth environment. The minutes of the Bank’s Monetay Policy Committee meeting in July show it would consider cutting the base rate from its historic low of 0.5 per cent if its Funding for Lending scheme is deemed a failure.

Woolnough (pictured) adds: “The challenges faced by central banks and governments are still there despite traditional and unconventional policy action. Maybe it will soon be time to use the conventional tool of cutting interest rates in an unconventional way by making them negative.”


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