LONDON (Reuters) – Bank of England Governor Andrew Bailey said the central bank was realistic about the challenges negative interest rates would pose for the banking system, but repeated he was not ruling them out as a way to help Britain’s economy.
Bailey said the big share of retail deposits – which have tended to continue offering positive rates to investors even in countries which have cut rates below zero – in Britain’s banking system could reduce the effectiveness of any BoE negative rates.
“That does not mean to say that we rule out using negative interest rates for a moment,” Bailey said in an online speech given to Queen’s University Belfast on Tuesday.
“It means to say we are realistic enough, I think, to know that the transmission mechanism would be affected.”
Sterling jumped by half a cent against the U.S. dollar on Bailey’s comments before falling back.