BOE's Bailey: Negative rates are in the toolbox, but that is not the current plan

Bank of England (BOE) Governor Andrew Bailey said in a statement on Thursday, the negative interest rates are not the current plan, although it remains as a policy option.

Further comments

“Please don't think we are about to use negative rates.”

“7.5% unemployment is a very bad story but over time it gets resolved in our central scenario, inflation returns to target, so you can draw a conclusion from that about where policy is headed.”

“There are some hard yards to come, we are ready to act if needed.”

“We are not taking a strong signal from the recovery so far for what happens next.”

“Effectiveness of negative rate depends on the structure of the banking system; the UK has large share of retail deposits.”

“Effectiveness of negative rates depends on what point of cycle they are used; ECB research suggests most effective in an upswing.”

“We could do more QE, new forms of forward guidance.”

“Risks are skewed strongly to the downside.

“Further stimulus would depend on downside risks coming to fruition.”

“We would need to see a lot more evidence that the economy is evolving as per BOE central case.”

“Failure of the UK to reach a trade deal with the EU is part of skew of risks to the downside but COVID-19 is the biggest issue for the economy now.”

“Faster economic data give only a partial picture of the economy.”

“Our forecast on unemployment is not that different to OBR’s forecast, especially when you consider we have a downside skew,” BOE Deputy Governor Ben Broadbent said.

GBP/USD remains capped below 1.3200

Amid downplaying negative rates expectations and cautious outlook, BOE Governor Bailey’s comments keep the GBP/USD in familiar ranges around 1.3170.

The spot consolidates near four-month highs of 1.3182, up 0.45% so far.