The Bank of England’s deputy governor Paul Tucker last week revealed that the Monetary Policy Committee has discussed the idea of negative interest rates.
Tucker was quizzed by MPs at a Treasury select committee on the minutes of the last MPC meeting. The minutes specifically listed a range of possible monetary instruments and alluded to other options which were not included.
When asked about the options which were not listed, Tucker told MPs today that he has raised the idea of negative interest rates in the past but that it is an “extraordinary thing to do” and requires careful consideration.
He said: “I hope we will continue to think about whether there are constraints to setting negative interest rates. This is an idea that I have raised. This would be an extraordinary thing to do and it needs to be thought through very carefully.”
He added that it was “not something anyone should clutch on to as the answer to the universe”.
The base rate has remained at 0.5 per cent since March 2009. Tucker also touched on the possibility of bringing the rate down to zero, noting the potential risk this presents of making things harder for building societies and small lenders.
The members of the Monetary Policy Committee unanimously voted to keep the rate at its current level last month, while Mervyn King, Paul Fisher and David Miles all voted in favour of increasing the QE programme to £400bn from £375bn.
Tucker was also asked about the potential drawbacks to alternative asset purchases. He responded that he was not opposed to the concept of buying non-gilt assets but said the main classes of assets in the UK are equity and land, unlike in the US, where there is a “wealth of other assets to nominate”.
See this month’s Shadow MPC on page 24