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Paul Tucker may impose negative interest rates on banking reserves

Radical idea.

The Bank of England deputy governor Paul Tucker has raised the possibility of imposing negative interest rates on a portion of banking reserves in an effort to improve economic growth.

Tucker, however, stressed that any action was not likely to happen soon. “This would be an extraordinary thing to do and it needs to be thought through very carefully,” he said.

The central bank’s monetary policy committee has repeatedly resisted calls to cut the official rate and the rate it pays on reserves in its treasury.

Rejecting suggestions that it should impose negative official interest rates, the BoE said that any step in this direction would automatically cut rates on existing tracker mortgages, potentially.

The bank officials told the Commons Treasury committee that they had not ruled out an increase in asset purchases.

Following Tucker’s comments, the pound came under pressure but it quickly recovered.