In the UK, one of the Bank of England's deputy governors has tried to shoot down speculation that Britain might experiment with negative interest rates -- a day after a fellow deputy suggested it might.
Charlie Bean insisted that the Bank was not about to ask to be paid to hold commercial banks' deposits, despite Paul Tucker hinting that it was under consideration.
Speaking at a conference organised by the Institute of Economic Affairs, Bean said:
Any suggestion that we have a plan to introduce negative interest rates immediately, I should make absolutely clear, is not the case.
The ECB cut its deposit rate to 0.0% last year, in an attempt to get banks to lend. But as our economics correspondent, Phillip Inman, reports, Bean says the Bank of England couldn't easily folow.
Bean did his best to demolish the policy, saying it would create huge problems for banks that have tied mortgages to the current bank base rate of 0.5%.
"It has significant negative side-effects which is why I do not support it," explained Bean.
He pointed out that the European Central Bank has a separate rate for some commercial bank deposits because they are forced to keep particular reserves, whereas UK banks are allowed flexibility.
Disaggregating some bank deposits with Threadneedle Street from others would be a minefield, Bean added.
I just chatted with economist Shaun Richards, who argued that the ECB's move hadn't worked:
Zero rates had zero effect. The ECB cut the deposit rate to zero, and all the money just moved to another account in the ECB.
Richards said he wasn't surprised to see Tucker discussing negative rates, given the weak state of the UK economy and the Bank's failure to stimulate output. But he pointed out that previous rate cuts haven't had much effect, and warns that savers would inevitably suffer.
Just to be clear, this is different from the Bank of England's base rate, which is at a current record low of 0.5%. Our Q&A explains all....
...unlike a certain radio station this morning, it seems:
Re: LBC radio yes I was Shaun from Battersea and yes I was cut off when I explained the consequnces of -ve interest rates for savers!
— Shaun Richards (@notayesmansecon) February 27, 2013
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