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BOE’s Bailey: Negative Rates Pose Significant Challenges to Lenders

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According to a story carried by the Sunday Times, the Bank of England (BOE) Governor Andrew Bailey has written a letter to lenders. In it Bailey warns of the significant challenges negative interest rates would bring.

The letter read, “negative rates were one of the potential tools under active review if the MPC decided that more stimulus was needed to achieve the BOE’s 2% price target.

He noted that many would need 12 months to change computer systems, update financial contracts designed for a world of positive interest rates and work out how to communicate with clients.

Back in March, Bailey said that adjusting historic move into negative territory, where the Bank would charge commercial lenders to store reserves, would be “a significant operational undertaking for firms”.

In May Bailey reversed the previously stated position, telling the Treasury select committee that negative rates were under “active review”, and paving the way for negative rates to become a reality.

Possible Market Reaction

The above report could push the pound-negative, which could drag GBPUSD back below the 1.2400 mark, at the weekly opening in a couple hours.

Also weighing on the Sterling is the heavy focus on Brexit trade talks in the week ahead. So far leaders in the EU-UK talks have remained far apart. With Germany signaling their preparation across the board for a no-deal exit.

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