By William Schomberg and David Milliken
LONDON (Reuters) – Bank of England Deputy Governor Dave Ramsden said he thought the floor for the central bank’s key interest rate was 0.1% but the BoE was “duty-bound” to consider going below zero as part of its efforts to help the economy through its coronavirus crisis.
“For me, I see the effective lower bound still at 0.1 which is where Bank Rate is at present,” Ramsden said in an interview with Britain’s Society of Professional Economists posted online.
Sterling extended its rise against the dollar and the euro after his comments.
The BoE said this month it would look at how it might be able to implement negative rates if they were needed, building on an announcement in August that the option was part of its toolbox.
One of the BoE’s nine interest-rate setters, Silvana Tenreyro, said in a newspaper interview published on Saturday that the investigation into whether negative rates might help the economy had found “encouraging” evidence.
Ramsden said in his interview with the SPE that there were some jurisdictions where negative rates appeared more effective than in the euro zone and Japan, but their usefulness depended on the economic cycle and the structure of the banking system.
The BoE cut interest rates to a record-low 0.1% in March, and until this year it had always ruled out negative rates, saying they would hurt Britain’s banks and building society lenders.
But the scale of the COVID-19 hit to the economy, and the possibility of Britain failing to strike a trade deal with the European Union, have forced the BoE to reconsider.
Ramsden said interest rates on households’ bank deposits tended not to fall below zero when central banks pushed their benchmark rates into negative territory – which could hurt banks as