Bank of England governor Mark Carney says that Britain’s central bank will take “whatever action is needed” in order to ensure that the UK economy remains strong and weathers the storm caused by the UK’s vote to leave the European Union.
In a move reminiscent of European Central Bank president Mario Draghi’s famous “Draghi put” — when he reassured markets that the ECB would do “whatever it takes” to save the euro in 2012 — Carney told reporters that the Bank of England is ready to take further measures to protect the British economy.
Speaking after the Bank of England announced a 25 basis point interest rate cut, £70 billion pounds of new quantitative easing, and a new Term Funding Scheme to give banks access to a further new line of funding, Carney once again sought to reassure the British public and the financial markets that the Bank has tools in its arsenal ready to combat a downturn in the UK.
Carney’s comments echoed those of the new chancellor of the exchequer, Philip Hammond, who said in a letter to the governor earlier on Thursday that he is “prepared to take any necessary steps to support the economy and promote confidence.”
He added that the Bank is ready to implement new stimulus for the British economy in coming months, including the potential to take interest rates even closer to zero.
A firm “No” to negative interest rates and helicopter money
Carney however, completely ruled out Britain seeing a negative bank rate, saying, as he has done in the past: “I’m not a fan of negative interest rates. We’ve seen the consequences of them in other financial systems. We have other options to provide stimulus if more stimulus is needed so we don’t need to go to that resort.
He added that the MPC sees the effective lower bound as “a positive number close to zero.”
Asked several times about the potential for crossing the so-called “zero lower bound” he eventually replied: “We’re not intending to move to negative interest rates. At least, I’m not intending to move to negative interest rates.”
“Take that off the table from me.”
Helicopter money was also completely entirely discounted, during the current governor’s tenure at least, with Carney describing the concept and similar ideas as “flights of fancy.” That comment confirmed a view first put forward by the governor in April, when he said helicopter money has the potential to create a “compounded Ponzi scheme.”
“I don’t see the merit in that strategy. We have a range of tools, we still have scope under all the tools we announced today. Additional stimulus might not be necessary. There’s not a need for such flights of fancy here in the UK,” the governor told reporters on Thursday.
Carney also said that the Bank’s MPC believes that had it not announced new measures on Thursday that the British economy would have suffered more than it will, saying “we do expect output would have been lower, unemployment would have been higher.”
However, once again, Carney noted that the Bank of England “cannot immediately or fully offset the impacts of a large shock” to the economy with monetary policy measures.
Having called the Bank’s stimulus package “timely, coherent, and comprehensive” several times during his press conference, at one point Carney directly addressed the British public and sought to assuage concerns about lending during the coming economic slowdown, saying: “If you have a viable business idea and qualify for a mortgage, you can get credit. This is not 2008, 2009, 2010, 2011, 2012, 2013 and a half of 2014, this is a different world.”
“The banks have no excuse not to pass on” today’s interest rate cut and term lending scheme to consumers and businesses, he added.
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