LONDON, April 8 (Reuters) - A marked shift towards online payments in Britain during the COVID-19 pandemic has strengthened the viability of negative interest rates, Bank of England rate-setter Silvana Tenreyro said in an interview published on Thursday. “Things have changed a lot. The lower bound is not an immutable number. How far we can go depends on technological progress and also policy decisions,” Tenreyro, a member of the Monetary Policy Committee, told the Financial Times. “The lower bound today is much lower than 10 years ago and even last year,” she added. In February the BoE gave British financial institutions six months to get ready for the possible introduction of negative interest rates, though it stressed that no decision had been taken on whether to implement them. The MPC’s four external members - Tenreyro included - have sounded more open to deploying negative rates than the five members drawn from the BoE’s staff, who have stressed potential difficulties for Britain’s banking system. Tenreyro said the increased use of online payments during the pandemic and declining use of cash - which negative interest rates do not affect directly - had strengthened the potential effectiveness of negative rates. Last month Lloyds Bank said 55% of its customers’ money was spent online in February 2021, compared with 38% a year earlier, while withdrawals from cash machines had fallen by 33%. Although charging negative interest rates on deposits held at banks could in theory encourage people to use cash instead, Tenreyro said this was unlikely in practice. “Imagine if people, instead of digital payments, relied exclusively on cash. Every time they made an online purchase they would need to go to the post office or a bank to send money to their various suppliers,” she said. “The cost of that time and inconvenience is significant and vastly outweighs the cost of small negative rates.” (Reporting by Andy Bruce, editing by David Milliken)