BoE member hints at negative rates: Report

Central bank policy was back in focus in the U.K. on Friday with one member of the Bank of England's monetary policy committee telling a newspaper that the country could adopt a negative rate policy.

"Theoretically, I think interest rates could go a little bit negative." Gertjan Vlieghe, who joined the committee in September last year, told London-based newspaper The Evening Standard on Friday.

Vlieghe added that the central bank would "have to think very carefully" about whether the positive effects would outweigh the downside.

"Even if you are willing theoretically to consider negative interest rates, there is only so far that they can go negative before you start worrying about the thing that central bankers have been worrying about all these years — which is: 'not only am I not getting any interest paid on my money in the bank, it is now potentially going to charge me, in which case I won't keep my money in the bank, I'll just take it out and keep it at home'," he added in the article.

"Once that happens, that is almost certainly negative for the economy because then you undermine the whole bank funding model ... so we want to stay well away from that scenario."

The Bank of England
Alice Tidey | CNBC
The Bank of England

When asked how deep into negative territory could rates go, he said that it depended on the costs to large companies of storing, transporting and insuring huge piles of cash themselves.

"People have tried to come up with how much it costs to do that. I've seen estimates in the range of anything from 0.75 percent and up. Once you start thinking about rates 0.75 percent negative, companies are going to start taking that seriously. I think the switching point is somewhere around minus 0.5 percent, minus 0.75 percent, maybe minus 1 percent."

A negative interest rate policy, or NIRP, essentially charges banks to hold cash at a central bank in the hope that they will instead lend to the real economy. Many expect banks to pass on this disincentive to save to its customers by trimming rates or by ramping up borrowing costs.

The Bank of Japan, the European Central Bank (ECB), the Danish National Bank (DNB), the Swedish Riksbank, and the Swiss National Bank (SNB) have all pushed key short-term policy rates into negative territory.

Read the full story on the Evening Standard's website.