BoE has no plans for negative interest rates, Carney tells parliamentary committee

Bank of England chief Carney on Tuesday said the MPC had no intention to impose negative interest rates on banks and revealed that a special unit had been formed to investigate the potential fall-out from 'Brexit', Governor Mark Carney revealed on Tuesday.

His admission about the latter followed a rather embarrassing mistake on the part of staff at the Old Lady on Threadneedle Street, who reportedly sent details about the unit by accident to the Guardian, including PR notes on how to go about denying its existence.

Sir John Cunliffe, the deputy director for financial stability at the BoE, was put in charge of the focus group.

Carney also said the Bank was monitoring UK banks´ contingency plans for a possible 'Brexit'.

Further details on the Bank´s contingency plans were expected at Carney´s testimony before the same committee scheduled for 8 March.

About negative interest rates

When queried about possible plans to impose a regime of negative interest rates, the Governor was very clear in his response.

"We have absolutely no intention, no interest, in doing that [imposing negative rates]."

Intriguingly, he did point out how mortgage rates in Switzerland, whose central bank had imposed negative rates, had in fact risen.

Gertjan Vlieghe, another of the MPC´s members who testified on Tuesday, added it was very difficult to know how banks might react to negative rates, adding that it depended on each lender.

About interest rates

On a 'dovish' note, the central bank chief said he expected interest rates to rise, gradually, over the forecast horizon.

However, he added that, "but of course, if risks increased and the global economy deteriorated, that would have implications."

Indeed, both Carney and fellow MPC member Martin Weale indicated the BoE had more tools in its toolbox should they become necessary.

Nonetheless, he went on to explain that the Monetary Policy Committee was not deciding on policy today, but when it did it would need to balance the positives in the outlook for the UK´s domestic economy with the "disappointing" signs from abroad.

Carney added that the BoE “will take the exchange rate as given”, although the Bank’s agents would be watching for signs that business confidence had taken a hit from moves in exchange rate.

On Brexit

Gertjan Vlieghe, another of the MPC´s members who testified on Tuesday, warned that a weaker pound would usually boost growth, but the current situation was more complex due to the risk of 'Brexit'.

About falls in banks´ share prices

Significantly, when asked whether he had confidence in banks´ resilience given the recent share price falls, the Governor distinguished between fears around solvency - which were not present - and profitability.