Bank of England releases a major signal! Britain needs at least 6 months to prepare for the negative interest rate shift
Bank of England said on February 4 that British banks need at least six months to prepare for the shift to negative interest rates.
In October, the Bank of England asked British banks about their readiness for negative interest rates. In September, it revealed that it was exploring the possibility of lowering interest rates below zero if necessary.
In a letter to banks published on Thursday, Sam Woods, head of the Prudential Regulation Authority, said that most banks need time to change systems and processes and implement strategic or tactical solutions. Program.
Woods said in the letter,
Based on the company’s response to this investigation, the Prudential Regulation Authority understands that most companies will be able to implement tactical solutions to adapt to negative interest rates within 6 months without causing substantial risks to safety and stability.
The Prudential Regulation Authority will now contact financial institutions to develop a tactical solution, to prepare all authorized financial institutions to implement a negative interest rate system in six months.
On Thursday, the Bank of England Monetary Policy Committee decided to maintain the monetary policy unchanged after its first meeting in 2021. Its main lending rate was maintained at 0.1% and the asset purchase target was maintained at 895 billion pounds.
The British Monetary Policy Committee (MPC) unanimously voted to keep interest rates unchanged and maintain the quantitative easing program at the current level, because the UK is expected to get rid of the economic damage caused by the epidemic.
Luke Bartholomew, the senior economist at Aberdeen Standard Investments, said that considering that some members of the Monetary Policy Committee have expressed the attraction of zero or negative interest rates, the vote was unanimously approved. Surprisingly. He said that this decision “is unlikely to be the end of this debate.” Bartholomew added,
However, the possibility of lowering interest rates to negative interest rates at least in the near term may decrease, especially as the central bank observes the progress of vaccine promotion and how the economy will eventually recover from the impact of the new crown epidemic.
The economic outlook for the UK is still uncertain, and the nationwide lockdown measures will not be implemented until at least early March, as the country is trying to contain the virus’s comeback, and the launch of its vaccine is still fast.
The bank also lowered its economic growth forecast for 2021 to 5% after the bank had predicted an annual growth rate of 7.25% in its November monetary policy report.
Forexlive analyst Justin Low said that for the Bank of England, it is increasingly likely that negative interest rates will not appear in the latest cycle because they once again lowered their expectations of negative interest rates, but left a gap. They need to reconsider this issue in case economic conditions deteriorate.
In any case, the Monetary Policy Committee still requires banks to be prepared for emergencies. But as warned earlier, the Bank of England’s hope that banks are prepared does not mean that negative interest rates will come.
If there is any difference, it is that the current expectations have changed. Negative interest rates seem to be more of an insurance policy by the Bank of England than part of the basic expectations.
The key point of today’s policy decision is that the Bank of England stated that its actions should not be seen as a signal that negative interest rates are coming. This indicates that interest rates are expected to fall and money market prices have also fallen.