BOE’s Ramsden: We are not about to use negative rates imminently


The Initial fall in the UK and global activity was less severe than the Bank of England (BOE) feared in May, said the central bank Deputy Governor Dave Ramsden in his speech on Monday.

Ramsden added: “We are not about to use negative rates imminently.”

Additional comments

How the UK economy develops will depend on how pandemic evolves, policy response and response from households and businesses.

 Sees effective lower bound still at 0.1%.

BOE’s central case sees GDP recovering steadily, but there are real uncertainties and risks.

If you have negative rates in the toolbox, you are duty bound to explore in more detail the operational considerations.

Sees risks from COVID-19, US election, Brexit.

He is particularly focused on labor market.

We will need to factor Sunak's changes to the UK job support into November forecasts.

Engagement with banks on negative rates will take time.

Our central case sees unemployment picking up "really sharply" this year.

We also have QE programme currently in flight.

Clear that risks to growth are to downside.

More likely unemployment will peak above 7.5% than below, be slower to fall.

Risk is that households will be more cautious of COVID-19 rather than less.

Sees a danger of permanent or semi-permanent labour market scarring, and skills mismatch.

There are some jurisdictions where evidence suggests more positive effect of negative rates than examples of Euro zone and Japan.

We remain ready to act further if needed.

Rates on retail deposits tend not to fall below zero which is relevant in the UK context after ring-fencing.

ECB implemented negative rates during a recovery phase, the UK will see more loan losses coming through.

Burden of proof for any future rise in interest rates will be high.

GBP/USD extends the upside

GBP/USD’s advance picked up pace above 1.2850 after the BOE policymaker downplayed negative interest rates expectations.

At the time of writing, the spot is off the four-day highs of 1.2858, still up 0.82% on the day.

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