Wednesday, August 17, 2016

Bank of England to put rates at zero, start buying everything

February 28, 2009 by · Leave a Comment 

By Edmund Conway, The Telegraph

The Bank of England is set to bring interest rates down to an effective zero level within days and to sound the starting pistol on quantitative easing, pumping extra cash into the economy.

The Government is putting the finishing touches to a letter to the Bank endorsing its proposal to embark on this radical policy.

The Bank’s governor, Mervyn King, will be granted approval by the Treasury within days to create up to L150 billion in new money in the coming months to buy up everything from corporate bonds to government debt. It will pave the way for the Bank’s Monetary Policy Committee effectively to “start the presses” at its interest rate setting meeting this Thursday.

The move is the latest stage in the Bank’s efforts to prevent the economy from sliding towards deflation.

The MPC is likely also to cut interest rates at its meeting to a new unprecedented low of 0.5 percent at its meeting this week, with some anticipating that it may reduce them to a nominal point just above zero.

The eventual level that rates will hit depends on whether Bank experts have calculated that at these kind of levels further cuts in borrowing costs would have any extra effect.

Many mortgage lenders are refusing to pass on further cuts in borrowing costs to their customers,

But most significant of all will be the MPC’s undertaking at the meeting this week to start buying government bonds in what many see as the “nuclear option” for monetary policy.

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