Andrew Bailey, the governor of Bank of England, has talked about negative interest rates being in the tool bag whereas Silvana Tenreyro, the Monetary Policy Committee (MPC) member, has revealed that it is encouraging to see negative interest rates evidence in the chart. But another MPC member, Dave Ramsden has been speculating the idea that the UK Interest rate without proper policy backfiring might fall below 0.1%.
The negative rates encourage bank loans as they charge fees for any cash in the bank. It is still a question if the banks of England will dare to take this step and pass the negative rates to their respective customers as if they look at their European counterpart, they will realise that negative rates have always led to a miserable decade for bank’s profits in Europe. The diminishing returns set in fast even though there is evidence that negative rates lead to reduction in lending costs.
In 2009, Sweden became the first country to experiment with the negative interest rate with its Central Bank and started charging bank interest on overnight deposits. The main interest rate turned negative for the bank in 2015. It had to cut the deposit rate to -0.1% in 2014. Switzerland followed the suit.
If seen as a stimulus measure one can go by the records that the negative rates have always given underwhelming results. In 2016, the Bank of Japan cut its key rate to -0.1%. The negative rates did not serve as a remedy for either the Eurozone or Japan to weaken the inflation. They did not have much effect on the saving and spending choices of the people. In 2019, Sweden ended its negative interest-rate policy.