Plans to reduce interest rates to below zero have been met with shock and disbelief, with critics describing such policies as “insane”.
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Earlier this week, Paul Tucker, a deputy governor at the Bank of England, said that negative interest rates should be considered to boost lending to businesses and households.
And now a fellow deputy governor, Charlie Bean, has said that “there is nothing to stop us” implementing sub-zero rates in a bid to kick start the economy.
Although he said there were no plans to do so immediately, the proposal was greeted with disbelief from savers and critics alike.
If the base rate did slip into the negatives, major banks would be obliged to pay the central Bank to hold their money, which would encourage them to increase lending, stimulating both business and house buying.
However, this would have an adverse knock-on effect on savers, with sub-zero interest rates driving the rates on savings accounts even lower. Savers have been struggling to build up a nest egg since the base rate was slashed to 0.5% in March 2009.
Mr Bean said: “There is nothing to stop us in principle having a negative rate paid on commercial bank reserves.”
He added: “Any suggestion that we have a plan to introduce negative interest rates immediately, I should make absolutely clear, is not the case.”
The suggestion prompted furious response from critics. Simon Rose, from campaign group Save Our Savers, said: “Whether or not we get negative interest rates, the Bank of England is clearly determined to crush savers underfoot.
“Why is nobody sticking up for savers? Why are the Chancellor and the Bank of England going in the opposite direction? Plundering savings is a desperate short-term solution that will have appalling long-term consequences.”