Negative interest rates can provide ‘significant stimulus,’ Bank of England official says

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Negative interest rates can provide ‘significant stimulus,’ Bank of England official says


Negative interest rates could provide significant stimulus, a Bank of England official said Monday amid speculation the U.K. central bank will move rates below zero as early as February.

Silvana Tenreyro, a voting Bank of England official, dismissed many of the standard arguments against negative rates as she touted their benefits when studying the experience of Denmark, the euro area, Switzerland, Sweden and Japan.

While the pass-through to households can be constrained, negative rates do appear to be passed on in the form of corporate deposit rates, which may stimulate spending by firms, she said. Tenreyro added there’s also looser bank lending conditions. She said bank profits have not been hurt by negative interest rates, and given the boost to the economy, bank profits may even have helped them.

She said the central bank’s work on the feasibility of negative rates is still in progress.

After her speech, the yield on the 2-year gilt
TMBMKGB-02Y,
-0.103%

actually edged higher to -0.11%. The pound
GBPUSD,
-0.72%

traded at $1.3466, down from $1.3566.

The FTSE 100
UKX,
-1.09%

struggled, shedding 1.5%, about in line with its European peers. Mining sector giants Rio Tinto
RIO,
-2.00%

and BHP Group
BHP,
-2.88%

paced the decline as inflation-adjusted bond yields rose. That in turn sent the dollar higher, and prices of metals, including copper
HG00,
-3.02%

and platinum
PL00,
-4.93%

lower.

JD Sports Fashion
JD,
+3.39%

was one of the few advancers, rising 3% as the U.K. sporting-goods retailer said its pretax profit for the year ending Jan. 31 will be at least £400 million, compared with market expectations of £295 million. The sporting-goods retailer added next year’s profit will grow between 5% and 10%.



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