There is 'positive evidence' to support negative interest rate policy, says member of Bank of England Monetary Policy Committee

Silvana Tenreyro, an external member of the Monetary Policy Committee,Silvana Tenreyro, an external member of the Monetary Policy Committee,
Silvana Tenreyro, an external member of the Monetary Policy Committee,
THERE is evidence negative interest rate policy can lead to lower lending rates and an increase in banks' profitability, according to an external member of the Bank of England's Monetary Policy Committee.

Silvana Tenreyro, a Professor in Economics at the London School of Economics, made the comments after she spoke to business leaders in Yorkshire via an online link yesterday.

She conducted a briefing for contacts and hosted a small roundtable for firms in North Yorkshire, and spoke to sixth formers in Mirfield, West Yorkshire.

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Afterwards, she told The Yorkshire Post: "The positive evidence related to negative interest rate policy comes from Europe, where it has worked fairly well.

Professor Silvana Tenreyro chatted to pupils in Yorkshire online.Professor Silvana Tenreyro chatted to pupils in Yorkshire online.
Professor Silvana Tenreyro chatted to pupils in Yorkshire online.

"It led to lower lending rates and increases in lending; and banks' profitability actually increased.

"It's important to understand the reasons why we are in the new world with lower rates,'' she added. "Over the last several years, we have seen lower productivity growth and lower desired investment.

"This is due to factors outside the control of monetary policy,'' she added. "People are living much longer and having fewer children. Moreover, productivity growth has decreased and tail risks have increased.

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"We will be in the world of low interest rates for a long time. That's why it's important for the MPC to engage with the review of negative rates in the UK."

Professor Tenreyro, who has an MA and PhD in Economics from Harvard University, added: "Lower rates mean lower borrowing costs and that's a positive for businesses."

She said: "I kicked off the round table discussion with businesses with a summary of the Monetary Policy report from earlier in November and the companies shared the experiences of what they are going through at the moment with the pandemic.

"The big point to take away was that the second lockdown would have less of an impact than the first one,'' she added.

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"They said the furlough schemes had been a good bridge to get them through the worst of the crisis.

"They said productivity was somewhat mixed with positives caused by the investment in new technology, which had been brought forward, although there were also more negative effects due to absenteeism and stress.

"A lot of them talked about a hybrid way of working in the future, with people spending two to three days a week at home."

"Monetary policy has supported businesses and households by keeping borrowing costs low and that's helped with cash flow.

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"We have also supported parts of the economy not directly affected by the pandemic

"The role of the MPC is to achieve the target of 2% inflation and, subject to that, support growth and employment."

In the summer, the Chancellor, Rishi Sunak, announced that Professor Tenreyro would serve a second three-year term as an external member of the Monetary Policy Committee.

The Monetary Policy Committee (MPC) is made up of nine members – the Governor, the three deputy governors for monetary policy, financial stability and markets and banking, the chief economist and four external members appointed directly by the Chancellor.

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Before joining the Bank, Professor Tenreyro, was co-director and board member of the Review of Economic Studies and chair of the Women’s Committee of the Royal Economics Society.

She added: "With greater diversity (in leadership posts) you can see different perspectives and see a problem from a different angle. You can anticipate problems that other people can't see.

"The reason diversity matters is that many objectives require teamwork. In football you can't play with eleven Lionel Messis - you need a goalkeeper as well.

"Financial literacy is also very important for children, regardless of what career they decide on. Financial knowledge reduces the stress people go through – it might seem complicated, but it can be learned. It's very important for their personal life when they take out savings or a mortgage, for example."

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