Writing in the Telegraph this week, one commentator said they have failed everywhere and are a “cancerous tumour on the free enterprise system”.
Tell us what you really think, Ambrose Evans-Pritchard.
Simon French at Panmure Gordon takes a more balanced approach.
He says: “Beware the ideological opponents to negative rates as the evidence is genuinely mixed. Although I am also instinctively against it – the evidence I have seen is split and I’d rather my policymakers to listen to that than go with their gut.”
Perhaps one argument for going negative is that it will at least reassure companies worried about Covid disruption that their borrowing costs aren’t going to increase any time soon.
Some say negative interest rates would spell the end of so-called “free” banking, where customers are not charged so long as their current account is in credit.
Matt Cockayne at lending platform Yapily says: “We need to boost spending habits in a positive way, and for banks to start charging customers a monthly fee is going to stifle economic recovery further. Times are tough and we can’t ask the nation to spend even more money - especially not those who are struggling from not being able to work during lockdown or personally financing their business to keep it from going under.”
It’s an open question how effect negative rates are in any case.
Paul Dales at Capital Economics notes: “The BoE has recently pointed out that negative interest rates are probably more effective in the latter stages of an economic recovery rather than in the earlier stages (i.e. now). That’s because in the earlier stages when the banks are worried about further loan losses, negative rates are more likely to prompt the banks to reduce the supply of loans rather than increase them.”
Furthermore, since rates are already very low, it is hard to see too much of a gain from rates going to, say, -1%. It is not like the Bank of England, we assume, can cut rates to -5%. So a cut from here may not make that much difference.
What also seems clear is that there is no firm agreement within the Bank itself, at least not yet.
Neil Wilson at markets.com says: “Last month deputy governor Dave Ramsden issued a note of caution only a day after (MPC member) Silvana Tenreyro pointedly backed negative rates. It looks as though there are some clear ideological disputes among rate setters that needs to be worked out over the autumn, implying as Andrew Bailey suggested last week that negative rates are not likely on the near horizon, albeit they are being considered actively. The problem for the Bank would be an unemployment crisis into Christmas that could put pressure on the MPC to act.”
Some studies have shown that negative rates don’t boost lending for any decent length of time. There is a quick boost, then a drop off.
If the Bank does decide to push the negative button, we can assume that it is seriously worried about the near and medium-term future.
