Low Global Interest Rates Are Set to Stay, BOE Senior Adviser Says

(Bloomberg) -- Ultra-low interest rates globally look set to stay for some time and will continue to hurt the banking system, according to Huw Van Steenis, senior adviser to the Bank of England governor.

“This very perniciously low-rate environment is something which I think is deeply painful,” Van Steenis said in a Bloomberg Television interview on Thursday. “As the banking system becomes less profitable, it becomes more brittle. It can't invest in new technologies. It struggles to pass it on.”

The European Central Bank has negative rates and is poised to cut them further in September -- while also pledging to study options to mitigate the punitive effect on banks. The Federal Reserve cut U.S. rates for the first time since 2008 this week.

The Bank of England, which will announce its latest policy decision at 12 p.m. in London, has a benchmark rate of 0.75% and investors are forecasting it'll fall if Brexit goes badly. Van Steenis doesn't have a role in setting rates.

Read more: BOE Grapples With No-Deal Brexit Prospect: Decision Day Guide

Asked about the difficulties of regions such as the euro zone and Japan returning to a positive rate regime, Van Steenis said that “for the moment, we now look like we're going lower, and for this cycle it's not likely that we're going to be raising rates.”

Van Steenis compiled a “Future of Finance” report for the BOE in his role advising Governor Mark Carney, in which he suggested updating regulations for the digital age among other recommendations.

Asked about the likely future of Facebook Inc.'s Libra digital currency, he said it's “not obvious” that it will be successful. It's not necessarily the right solution for relatively unbanked markets like India, he said, since there are still restrictions on the use of cryptocurrencies there.

“It's going to be a really complex roll-out for them,” he said.

To contact the reporters on this story: Jill Ward in London at jward98@bloomberg.net;Tom Keene in New York at tkeene@bloomberg.net;Francine Lacqua in London at flacqua@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Paul Gordon

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