26 February 2013, 21:13
Another sign that the end is nigh?
http://www.dailymail.co.uk/news/article-...rates.html
Plight of savers could get even worse as Bank of England considers NEGATIVE interest rates
Deputy governor Paul Tucker says Bank has discussed radical move
High street lenders would have to pay the central bank to hold their money
Move could wipe out savings rates and inflation would ravage deposits
Negative interest rates should be considered as an option to encourage banks to lend to small and medium-sized firms, the Bank of England’s deputy governor for financial stability said today.
Paul Tucker said the dramatic move had been discussed at this month’s rate-setting meeting as an option to help fuel economic growth.
Such a move would spell catastrophe for cash-strapped savers, who have already been crippled by rock bottom rates since the Bank of England dramatically cut the base rate to its record low of 0.5 per cent in March 2009.
Cutting it further to below zero would effectively mean depositors, such as high street lenders, would have to pay the central bank to hold their money.
The hope would be that banks would therefore choose to lend out more of their funds to small businesses rather than stockpiling it at their expense.
But the base rate is also used by high street banks to set their own interest rates for customers.
There are currently just three savings accounts offering interest rates that beat the current 2.7 per cent rate of inflation: one offers 2.8 per cent, one is disappearing from the market within days and the third is available to a very restricted geography.
A negative base rate would likely see savings rates plunge even further, resulting in prudent savers’ nest eggs being eaten away at an even faster rate.
Speaking to MPs on the Treasury Committee, Mr Tucker said: 'This would be an extraordinary thing to do and it needs to be thought through carefully.
'I hope we will think about whether there are constraints to setting negative interest rates.’
He also suggested more bond-buying through the quantitative easing scheme was on the cards and added that the pound may need to weaken more - a comment that pushed sterling to near 2.5-year lows against the dollar.
Banks cut interest rates to make saving less attractive and borrowing more attractive, which in turn stimulates spending to boost economic growth.
However, with the base rate already at 0.5 per cent the Bank is running out of conventional tricks to encourage growth and is looking at other alternatives.
When it cut the base rate to 2009 the Bank judged it could not be reduced below that level.
Instead it has resorted to quantitative easing – which has a similar effect to cutting the base rate of encouraging spending - and has also looked at other policy measures including buying other assets.
It is hoped Mark Carney, who is taking over as Bank Governor in July, will also bring much-needed new ideas to boost the economy.
It would not be the first time a central bank had resorted to a negative base rate. In 2009 the Swedish central bank, the Riksbank, set a rate of -0.25 per cent on its deposit rate.
In December the Swiss bank Credit Suisse implemented negative rates on bank deposits to curb demand for the Swiss franc.
http://www.dailymail.co.uk/news/article-...rates.html
Plight of savers could get even worse as Bank of England considers NEGATIVE interest rates
Deputy governor Paul Tucker says Bank has discussed radical move
High street lenders would have to pay the central bank to hold their money
Move could wipe out savings rates and inflation would ravage deposits
Negative interest rates should be considered as an option to encourage banks to lend to small and medium-sized firms, the Bank of England’s deputy governor for financial stability said today.
Paul Tucker said the dramatic move had been discussed at this month’s rate-setting meeting as an option to help fuel economic growth.
Such a move would spell catastrophe for cash-strapped savers, who have already been crippled by rock bottom rates since the Bank of England dramatically cut the base rate to its record low of 0.5 per cent in March 2009.
Cutting it further to below zero would effectively mean depositors, such as high street lenders, would have to pay the central bank to hold their money.
The hope would be that banks would therefore choose to lend out more of their funds to small businesses rather than stockpiling it at their expense.
But the base rate is also used by high street banks to set their own interest rates for customers.
There are currently just three savings accounts offering interest rates that beat the current 2.7 per cent rate of inflation: one offers 2.8 per cent, one is disappearing from the market within days and the third is available to a very restricted geography.
A negative base rate would likely see savings rates plunge even further, resulting in prudent savers’ nest eggs being eaten away at an even faster rate.
Speaking to MPs on the Treasury Committee, Mr Tucker said: 'This would be an extraordinary thing to do and it needs to be thought through carefully.
'I hope we will think about whether there are constraints to setting negative interest rates.’
He also suggested more bond-buying through the quantitative easing scheme was on the cards and added that the pound may need to weaken more - a comment that pushed sterling to near 2.5-year lows against the dollar.
Banks cut interest rates to make saving less attractive and borrowing more attractive, which in turn stimulates spending to boost economic growth.
However, with the base rate already at 0.5 per cent the Bank is running out of conventional tricks to encourage growth and is looking at other alternatives.
When it cut the base rate to 2009 the Bank judged it could not be reduced below that level.
Instead it has resorted to quantitative easing – which has a similar effect to cutting the base rate of encouraging spending - and has also looked at other policy measures including buying other assets.
It is hoped Mark Carney, who is taking over as Bank Governor in July, will also bring much-needed new ideas to boost the economy.
It would not be the first time a central bank had resorted to a negative base rate. In 2009 the Swedish central bank, the Riksbank, set a rate of -0.25 per cent on its deposit rate.
In December the Swiss bank Credit Suisse implemented negative rates on bank deposits to curb demand for the Swiss franc.
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