Jump to content
House Price Crash Forum
Fairyland

Negative Interest Rates Could Be Necessary To Protect Uk Economy, Says Bank Of England Chief Economist

Recommended Posts

DT:

Negative interest rates could be necessary to protect UK economy, says Bank of England chief economist

The Bank of England may need to push its interest rates into negative territory to fight off the next recession, its chief economist has said.

Andy Haldane, one of the Bank’s nine interest rate setters, made the case for the "radical" option of supporting the economy with negative interest rates, and even suggested that cash could have to be abolished.

He said that the "the balance of risks to UK growth, and to UK inflation at the two-year horizon, is skewed squarely and significantly to the downside".

As a result, "there could be a need to loosen rather than tighten the monetary reins as a next step to support UK growth and return inflation to target".

Speaking at the Portadown Chamber of Commerce in Northern Ireland, Mr Haldane's support for a possible cut in rates came as the Bank as a whole has signalled that the next move in rates would be up.

But recent volatility in financial markets, prompted by China, and a decision by the US Federal Reserve to delay rate hikes, have pushed back expectations of the Bank's first rate rise to November 2016.

Capture_3444520b.jpg

Traditionally policymakers have resisted cutting rates below zero because when the returns on savings fall into negative territory, it encourages people to take their savings out of the bank and hoard them in cash.

This could slow, rather than boost, the economy. It would be possible to get around the problem of hoarding by abolishing cash, Mr Haldane said, adding: "What I think is now reasonably clear is that the payment technology embodied in [digital currency] Bitcoin has real potential."

His remarks came as he made the case for raising the UK's inflation target to 4pc from the current level of 2pc. Mr Haldane said that a trend towards low interest rates across the globe has made it increasingly difficult to fight off recessions.

In the past, central banks have helped stimulate economies by slashing interest rates. But with rates at rock bottom in many parts of the world, many have found their ammunition depleted.

“Among the large advanced economies, official interest rates are effectively at zero,” Mr Haldane said.

realrates_3444516b.jpg

In the UK, the Bank's interest rate has been stuck at 0.5pc for more than six years.

One way to supply the Bank with more firepower would “be to revise upwards inflation targets”. The UK's inflation target is currently 2pc, but this dates from an era when interest rates were closer to 6pc than 0.5pc. It might be necessary to double that target to 4pc, Mr Haldane argued.

Bank research has determined that slowing growth, ageing populations, weaker investment, rising inequality and a savings glut in emerging markets have all contributed to a generational decline in interest rates.

Mr Haldane said: “These factors are not will-of-the-wisp. None is likely to reverse quickly.

“That would mean there is materially less monetary policy room for manoeuvre than was the case a generation ago. Headroom of two percentage points would potentially be insufficient." However a hike in the inflation target to 4pc would provide extra "wiggle room".

Mr Haldane's remarks contrast with those from Mark Carney, the Bank’s Governor, two days ago, when he said that the poor and elderly tended to suffer the most as a result of higher inflation.

“The people who tend to get hurt the most by inflation are the poor, the elderly, those that can’t hedge themselves – that’s been the experience throughout history,” the Governor told MPs.

However Mr Haldane said that “there was little evidence to suggest these [welfare] costs would be large”.

He did admit that such a policy change to raise the inflation target was likely to be unpopular. “When the public are asked directly about the inflation target they suggest, on average, that it may, if anything, be a little too high,” he said.

“An inflation target above current levels would not only risk putting central banks’ reputations on the line… it could also jar with the general public’s preferences.”

Mr Haldane also suggested that central banks may have fight off downturns more often, adding that the kind of shocks caused by recent turmoil in Greece and China “should not be seen as independent events”.

“They are part of a connected sequence of financial disturbances that have hit the global economic and financial system over the past decade,” he said, and are indicative of the kind of threat emerging markets could pose to the UK’s recovery.

Share this post


Link to post
Share on other sites

If they abolish cash then people will use another currency instead, gold, usd, butcoin, not sure which.

The only reason they'd abolish cash would be to enforce negative interest on your savings. I think they're be a riot frankly.

Share this post


Link to post
Share on other sites

Help me understand please. Do negative rates mean people are paid to get a mortgage?

Yes.

And charged interest on their cash holdings.

Share this post


Link to post
Share on other sites

Oh FFS.

Anyone who has cash in the bank should remove it (or should have already). Better to hold notes (if you must) than leave it at the mercy of these morons.

Anyone who doesn't own any gold (and silver) should be buying it now (at least 5% of their overall holdings).

Now that they are openly talking about abolishing cash we are fast approaching the end game.

Edited by Errol

Share this post


Link to post
Share on other sites

Oh FFS.

Anyone who has cash in the bank should remove it (or should have already). Better to hold notes (if you must) than leave it at the mercy of these morons.

Anyone who doesn't own any gold (and silver) should be buying it now (at least 5% of their overall holdings).

Now that they are openly talking about abolishing cash we are fast approaching the end game.

Buying some more silver next month I like the designs on many of the coins even if Mad Max never comes to pass.

Share this post


Link to post
Share on other sites
[...]Mr Haldane's remarks contrast with those from Mark Carney.

Maybe a ruse to have a final push into BTL. When what is required is massive prime HPC and fresh lending. RBS can't find willing enough borrowers, with one Asset Management firm expecting RBS share-prices fall. Needs HPC vs £Trillions on the smug equity side, and general shakeup, with fresh debt on lower prices. RBS: Analyst assumptions behind this reflect our outlook for no revenue growth in the industry, driven by weak demand for loans and rates remaining low.

07 July 2014 - 08:20 AM

[.....]The world's major central banks are returning to a more opaque and artful approach to policymaking, ending a crisis-era experiment with explicit promises that they found risked their credibility and did not substitute for action. [.....]"Central banking used to be an art," said a senior official of a G7 central bank. "It became less so once, globally, but with what's happened at the Fed and the BoE, it may be back to being an art."

http://www.housepricecrash.co.uk/forum/index.php?/topic/199588-central-banks-ending-era-of-clear-promises-return-to-artful-policy/

Share this post


Link to post
Share on other sites

economy is doing great according to everyone on the news, but we keep getting this reality from the Banks.

Banks aint doing so well, only doubles all round.

Share this post


Link to post
Share on other sites

Thanks. So I should go and buy the most expensive house I can afford.

which, is infinity with an IO -ve rate

Share this post


Link to post
Share on other sites

Thanks. So I should go and buy the most expensive house I can afford.

which, is infinity with an IO -ve rate

Share this post


Link to post
Share on other sites

Government by press release.

Every trick in the book to scare those with liquid cash into the housing ponzi scheme.

The more they try to scare me into doing one thing, the more they convince me to do the opposite.

Share this post


Link to post
Share on other sites

Laughable as well that they are still drivelling about a recovery. What sort of recovery is it where the economy apparently can't manage on emergency 0.5% interest rates etc?

Share this post


Link to post
Share on other sites

Thanks. So I should go and buy the most expensive house I can afford.

It's unlikely normal savers will get deductions on capital. Negative interest rates are mainly thought of as a tool to encourage more lending by the banks, but there are two sides to the lending equation, and I won't buy at these prices. Same is true for others it seems, looking at demand for loans at RBS.

Even in Greece, a trace-deduction was only floated for depositors with very high sums on deposit (as I remember it).

Edited by Venger

Share this post


Link to post
Share on other sites

It's unlikely normal savers will get deductions on capital. Negative interest rates are mainly thought of as a tool to encourage more lending by the banks, but there are two sides to the lending equation, and I won't buy at these prices. Same is true for others it seems, looking at demand for loans at RBS.

Even in Greece, a trace-deduction was only floated for depositors with very high sums on deposit (as I remember it).

Possible. Savers will not get any interest but HPI will continue till eternity.......

If this really happens then the world as we know seems to be ending. What will replace cash? Barter trading?

Edited by Fairyland

Share this post


Link to post
Share on other sites

And CNBC says : The Fed may have just stoked a 'currency war'

A lack of activity by the U.S. Federal Reserve on Thursday may not have been a surprise, but it's left no doubt in analysts' minds that other central banks will now look to ease policy further, a move that could send more shock waves across global currency markets.

Valentin Marinov, managing director and head of G10 FX research at Credit Agricole, told CNBC Friday that he expects global "currency wars" to intensify from here. He predicts the Bank of Japan (BOJ), the European Central Bank (ECB) and the People's Bank of China (PBOC) has now effectively been pushed into unveiling more stimulus.

"The Fed inaction could spur other central banks into action," he said. "It is currency wars."

The dollar skidded to a three-week low against a basket of major currencies after Thursday's decision. This comes after the greenback had been appreciating significantly since the middle of last year in anticipation of higher interest rates in the U.S.

A higher interest rate can mean a higher yield on assets and investors in the U.S. have been busy bringing their dollars home, and thus out of high-yielding foreign investments.

A weaker dollar in the short term could now leave other global economies frustrated and dent export-focused companies that favor a weak domestic currency.

Manipulating reserve levels can be one way that a country's central bank can intervene against currency fluctuations. Other measures include altering benchmark interest rates and quantitative easing. Central banks often stress that exchange rates are not a primary policy goal and can be seen more as a positive by-product of monetary easing.

There have been discussions in the last few years that countries are purposefully debasing their own currencies -- a concern that was termed "currency wars" by Brazil's Finance Minister Guido Mantega in September 2010.

Credit Agricole's Marinov highlighted that the ECB could be the next to act by ramping up its current bond-buying program, thus weakening the single currency – even though its only mandate is to manage inflation.

Analysts at BNP Paribas also stated Friday that the Fed decision had increased their conviction that the ECB would increase its quantitative easing program. Marc Ostwald, strategist at ADM ISI, said in a note Friday that the ECB and the BoJ who will now face "even bigger challenges, given that the Fed is clearly not in any hurry to live up to its part of the 'policy divergence' grand bargain."

But there's also the volatility coming from China. Growth concerns in the world's second-largest economy have spiked in recent weeks after the country's central bank decided to intervene and weaken the renminbi. This managed to roil global stock markets with the Shanghai Composite seeing a rapid retracement of its year-to-date gains.

Chinese authorities might want a change to a more consumption-led economy, but this devaluation proved to many that they are not scared of helping out their export-focused sector. And Marinov highlighted that a weaker dollar could now mean China could devalue further as the country looks to deleverage its economy.

"(This) could unnerve and indeed lead to more market turmoil," he said.

"So by implication the Fed might be seeing more risks to their lift off," he said.

Edited by Fairyland

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   47 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.