BoE looking at sub-zero rate lessons from other central banks -Bailey

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LONDON — The Bank of England is studying other central banks’ experience with negative interest rates, but for now it is focused on how much its recent emergency rate cuts are helping the economy through the coronavirus crisis, Governor Andrew Bailey said.

Bailey said the BoE was not ruling out taking rates below 0% for the first time, but it was “not ruling it in” either.

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“(We’re) looking very carefully at the experiences of those other central banks that have used negative rates, and a number of them are actually publishing quite interesting assessments at the moment,” he told lawmakers on Wednesday.

The Bank of Japan and the European Central Bank have cut rates below zero, a move to deter banks from parking cash at the central banks and to lend it out as a way to boost growth.

Both the BOJ and the ECB have also recently sought to reward banks that use their credit lines, recognizing the need for incentives.

Bailey said last week the BoE was not contemplating taking rates negative but has sounded less opposed to the idea than his predecessor Mark Carney. Several other top policymakers have also left the door open.

Earlier on Wednesday, Britain sold debt with a yield below zero for the first time.

The BoE cut rates twice in March to a record low 0.1% and ramped up its war-chest for buying bonds, most of them sold by the government as it seeks to prop up the economy.

The central bank thinks the economy could shrink by a quarter between April and June due to the coronavirus lockdown.

How much long-term damage the economy will suffer is an open question, policymakers told parliament’s Treasury Committee.

“If one is to use a letter of the alphabet — and I heard a lot about our scenario being V-shaped — it is a pretty lopsided V, and there is no doubt that in our scenario the recovery is far from immediate and takes place over a longer period of time,” Deputy Governor Ben Broadbent said.

Bailey said the BoE might have to move quickly, which is why it was reviewing its policy options. But for now it wanted to observe how the economy responds to the March rate cuts.

“We’re very keen to observe and are observing how the economy responds to the cuts that we have made,” he said.

Economists have said they expect the BoE’s next move will be to increase the size of its bond-buying program next month. But investors have priced in negative rates by the end of 2020.

Bailey also said Britain would need tools to allow companies to swap debt for equity in future as way to cope with their emergency borrowing to survive the coronavirus crisis.

(Additonal reporting by Alistair Smout and Estelle Shirbon; Writing by William Schomberg; Editing by David Milliken and Catherine Evans)