Bank of England holds rates, and would need half a year for negative rates

first_img whatsapp Bank of England holds rates, and would need half a year for negative rates Before the Open: Get the jump on the markets with our early morning newsletter “The BoE also kept the door open for negative interest rates, if they are needed at some stage. This should support gilts, anchor the yield curve and keep financial conditions from tightening, hence supporting investment grade credit.” It also confirmed that it would take six months for banks to get ready for negative interest rates should they be introduced. The Bank of England (BoE) has today left interest rates on hold at 0.1 per cent and its bond-buying programme at £895bn. Luke Bartholomew, senior economist at Aberdeen Standard Investments, said: “What is perhaps more interesting is that the decision was unanimous, with no participants voting for a cut to negative interest rates despite several expressing their attraction to the policy. (Getty Images) Also Read: Bank of England holds rates, and would need half a year for negative rates Quantitative easing sees the Bank inject money into the economy to boost lending. Negative interest rates would take six months to implement The decision sent sterling spiking back past the $1.36 mark after slipping this morning, as traders welcomed the call to keep rates positive. It said that GDP had risen to around 8.0 per cent below 2019’s levels in the fourth quarter of 2020, “materially stronger” than anticipated. The Bank added that the new lockdown restrictions had overturned the predictions it made at November’s meeting. “It depends on the evolution of the pandemic, measures taken to protect public health, and how households, businesses and financial markets respond to these developments”, the nine-strong MPC added. “Bond investors will be comforted by the strong consensus among governors to keep monetary policy very accommodative”, Sels added. But on the other hand, current restrictions will see GDP fall 4.0 per cent in the first quarter of 2021, in contrast to expectations of a rise in the November report. Woods also said that the feedback showed a zero rate would be easier to put in place than a negative rate. However, the MPC did reveal that it would take six months for the Bank to implement negative rates if it pursued the policy. (Getty Images) (Getty Images) Also Read: Bank of England holds rates, and would need half a year for negative rates In a letter to bank chiefs, BoE deputy governor Sam Woods said: Sterling rose half a cent against the dollar, while British government bond yields jumped by around 3 basis points on the back of the decision. Analysts suggested that the unanimous nature of today’s decision suggested that negative rates were “off the table” for the time being at least. “An implementation period of shorter than six months would attract increased operational risks and could adversely impact some firms’ safety and soundness”, it added. The Bank’s Governor Andrew Bailey has mentioned the possibility of negative rates throughout the last year, but seems to have cooled on them recently.center_img (Getty Images) Also Read: Bank of England holds rates, and would need half a year for negative rates whatsapp Edward Thicknesse “This is unlikely to be the end of that debate, with the Bank releasing feedback from various stakeholders today along with their previous analysis.” “On the one hand, COVID-19 and subsequent lockdowns have led to a deterioration in current activity, but on the other, the future outlook has improved as a result of the faster-than-expected vaccination programme. “Such a signal only ever is found in its economic forecasts; they show that significant extra stimulus would be unhelpful”, he said. Tags: Bank of England Economists also predicted no changes to the Old Lady’s bond-buying programme, which was upped by £150bn in November. Other central banks, such as the European Central Bank, have taken the negative rates step, but the BoE is yet to follow suit. Share The BoE’s Monetary Policy Committee (MPC) voted unanimously to keep rates at record-low levels. However, it cautioned that the outlook for the year remains “unusually uncertain”. “The PRA understands that the majority of firms would be able to implement tactical solutions to accommodate a negative Bank Rate within six months, without material risks to safety and soundness. The finding came from a review of how prepared lenders like HSBC, Lloyds and Barclays would be to implement negative interest rates for the first time, which it published alongside its policy decision. It was widely expected that policymakers would keep interest rates on hold at today’s meeting, despite continued speculation that a negative interest rates could be introduced. Old Lady also keeps bond-buying programme at £895bn HSBC’s chief investment officer Willem Sels said that it was natural that the Bank had held off fiddling with its policy given the uncertainty. In a statement, the central bank said that it was expecting a rapid recovery in GDP towards pre-pandemic levels in 2021, led by the UK’s vaccination programme. But Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said that the review was not a signal that negative interest rates would follow later in the year. 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