In a Treasury Select Committee hearing analysing the Monetary Policy Committee’s (MPC) latest quarterly inflation report Tucker was questioned alongside fellow MPC members, Charles Bean, David Miles and Ian McCafferty.
The deputy governor said the implementation of negative interest rates would be an “extraordinary thing to do”.
For this reason he said the policy, which he initially raised in an MPC gathering, would have to be "thought through very carefully".
During the two-hour Treasury Select Committee meeting the MPC members were cross-examined by MPs about a number of economic matters, including the use of QE and its impact.
Backs up
In a particularly heated exchange Tucker was asked to list alternative monetary policies the MPC had considered and what drawbacks had deemed them unsuitable.
Tucker said he did not believe the initiative to be dismissed but added that negative interest rates in particular were “a radical idea and not something anyone should clutch onto as the answer to the question of the universe”.
The official bank lending rate in the UK has been at a record low of 0.5% for almost four years, aimed at getting banks to lend more.
A negative interest rate would mean banks would have to pay to hold their money, which could serve as an even bigger incentive to lend, but could undermine banks’ capital requirements under EU regulation unless it was ring-fenced.
Floor’s the limit
Another important point raised by the chair of the committee was how Tucker would propose putting a lower limit to negative interest rates.
The MP in question asked of Tucker: “Perhaps in writing you could set out the extent of your thinking, and it may be only very sketchily developed, on how you would go about putting a floor to negative interest rates?”
“It is a good question,” Tucker replied.
“That is why we are asking it and we look forward to your answer,” the chairman concluded.
