BOE’s Tenreyro: Evidence on negative rates is ‘encouraging’

The Bank of England’s (BOE) study of the impact of negative interest rates to support the economy from the coronavirus pandemic-induced downturn revealed ‘encouraging’ evidence, said policymaker Silvana Tenreyro in a Sunday Telegraph interview published late Saturday.

Key quotes

“The evidence has been encouraging,” adding that cuts in interest rates below zero had been almost fully reflected in reductions in interest rates charged to borrowers.

“Banks adapted well – their profitability increased with negative rates largely because impairments and loss provisions have decreased with the boost to activity and the increase in asset prices.”

“Flare-ups, like we’re seeing, may potentially lead to more localized lockdowns and will keep interrupting that V (-shaped recovery). Another factor interrupting the V is a very weak global outlook, with high uncertainties, particularly with a second wave already striking many countries.”

GBP/USD closes the week below 1.2750

GBP/USD dropped 1.35% in the past week to settle at 1.2747, courtesy of the coronavirus resurgence-led new restrictions and the persistent safe-haven demand for the US dollar. Although the UK Finance Minister Rishi Sunak’s furlough scheme did offer a temporary reprieve to the GBP bulls.

Heading into the weekly opening in Asia on Monday, nothing seems to have changed fundamentally for the cable, as the optimism over a potential Brexit deal remains overshadowed by the virus concerns and prospects of negative interests.