In a letter to lenders published Thursday, Sam Woods, the head of the Bank’s Prudential Regulation Authority said a majority of banks would need time to alter systems and processes and implement strategic or tactical solutions before setting negative rates.
The Bank of England is however not confirming that it will set negative rates in the near term, central bank Governor Andrew Bailey said in a press conference on Thursday after the central bank announced its latest decision on interest rates and published minutes of its Monetary Policy Committee meeting.
“There were a range of views on how the MPC should respond to the findings of the PRA engagement. The committee was clear that it did not wish to send any signal that it intended to set a negative bank rate at some point in the future,” Bailey said, putting to rest expectations after the central bank had indicated its consideration of moving to negative rates.
The PRA will now engage with firms on their development of tactical solutions, with the aim of having all authorized firms prepared to implement a negative rate regime after six months, the letter noted.
Silvana Tenreyro, a member of the BOE’s monetary policy committee, has said she believes negative interest rates will stimulate economic growth and bring inflation closer to the bank’s goals.
But some parts of the UK banking industry oppose negative rates. The chair of the Building Societies Association said on Monday that cutting the Bank’s lending rate to below zero would force institutions to subsidise savings rates to keep them positive, leaving them no option but to recoup the costs from higher mortgage rates.
The Bank of England (BoE) on Thursday left interest rates on hold at 0.1 per cent and its bond-buying programme at £895 billion.
The BoE’s Monetary Policy Committee (MPC) voted unanimously to keep rates at record-low levels; the central bank forecast a sharp improvement for the economy as vaccinations continue.