LONDON, Sept 15 (Reuters) - The Bank of England is considering cutting the rate it pays on reserves from commercial banks to encourage them to channel more money back into the economy, Governor Mervyn King said on Tuesday.
"Of course people have talked about whether it would be sensible to reduce the rate at which those reserves are remunerated and it is something which we are looking at," King told parliament's Treasury Committee.
British interest rate futures rallied and sterling fell on Tuesday after King's comments.
"I think we certainly would not want to reduce the rate of remuneration on a certain level of reserves, that is part of the framework, but above some normal level we could have a lower rate at which they are remunerated," he added.
"That would not change the overall level of reserves in the banking sector, that is determined by our asset purchases, what it would do is perhaps make the banks work a little bit harder to try individually to convert some of those reserves into other assets."
There has been concern the extra 175 billion pounds being pumped into the economy through the BoE's quantitative easing programme are being hoarded by banks rather than finding their way to struggling businesses.