Why the MPC is unlikely to join the negative rate club

▀ The economic shock from the coronavirus has warmed up the MPC's long‐held coolness toward negative interest rates. But we think there are a number of reasons why such a move is unlikely. ▀ While taking rates below zero could lower banks’ funding costs and encourage lending, the net economic effect is ambiguous. Also, ‘sticky’ deposit rates would hit banks’ already strained profitability, risking paradoxical effects. ▀ The MPC has better‐targeted tools available to it. If the MPC wanted to lower borrowing costs, increasing the generosity of the Term Funding Scheme could deliver the benefits of negative rates while reducing adverse effects. And the present scale of fiscal support reduces the need for looser monetary policy.