What Horrified Fund Managers, Banks & UK’s Pension Minister Said About the Bank of England’s Sudden “We Don’t Rule Out” Negative Interest Rates | Wolf Street
In the wake of the virus crisis, the Bank of England has already slashed interest rates by 0.65 basis points to 0.1%, its lowest level ever. It has also revved up its swap lines with the Federal Reserve and other central banks, offered billions of pounds of fresh liquidity support to banks, and expanded its QE program by £100 billion to £745 billion and extended what it buys to include corporate bonds.
On Wednesday, markets responded to Bailey’s ambiguous comments on negative rates by pushing the yields on gilts into negative territory for the first time ever. The UK Debt Management Office was able to sell £3.75 billion worth of three-year gilts at a yield of -0.003%, meaning that investors are now effectively paying to lend to the UK government, which is great news for the UK government as it massively increases its spending.
But not everybody’s happy about the BoE’s new openness to negative rates. While British bank executives have so far avoided a direct confrontation with Bailey, former UK pensions ministers, bank analysts and fund managers have warned that the move would be devastating for savers and could obliterate banks’ interest margins and profits. Here are six of the choicest quotes:
“Trying to fund pension liabilities with guarantees could become ruinous. Negative rates are an unwelcome distortion of capital markets. The policy is designed to boost growth, but its side effects could have damaging consequences that play out badly.” Ros Altmann, the former pensions minister (Telegraph).