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Bank of England: We'll slash interest rates to ZERO to rescue the economy

Discussion in 'The Economy' started by Tropo, 13th Nov, 2008.

  1. Tropo

    Tropo Well-Known Member

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    Bank of England: We'll slash interest rates to ZERO to rescue the economy

    Interest rates could be slashed to zero for the first time as the Bank of England battles the deepening recession.
    Governor Mervyn King said he is ready to reduce rates to ‘whatever level is necessary’ to counter the economic storm.

    He warned Britain’s economy could shrink by at least 2 per cent during 2009, pushing inflation into negative territory for the first time in almost half a century.
    A worst-case scenario could see a slump of more than 3 per cent in gross domestic product, the biggest year-on-year fall since the beginning of 1981.
    Bank of England: We'll slash interest rates to ZERO to rescue the economy | Mail Online
     
  2. AsxBroker

    AsxBroker Well-Known Member

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    Reminds me of Japan...
     
  3. Tropo

    Tropo Well-Known Member

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    Yep...:cool:
     
  4. Chris C

    Chris C Well-Known Member

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    I'm more concerned about the US becoming the next Japan more so than the UK...
     
  5. voigtstr

    voigtstr Well-Known Member

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    When interest rates are 0, why would people lend money? They wouldnt get a return on it?
     
  6. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    The Bank of England is the equivalent of the RBA ... they are referring to "official" interest rates. Lending institutions would typically add a margin on top of that.
     
  7. AsxBroker

    AsxBroker Well-Known Member

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    Hi Voigstr,

    Any lender will definitely add a premium on top of the BoE/RBA/Fed rate. They need to have some sort of margin, eg at the moment our banks have about 1.8% margin on funds they get from the RBA and lend to customers.

    Cheers,

    Dan
     
  8. voigtstr

    voigtstr Well-Known Member

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    Thanks for that. So the RBA could technically set the rate at minus something, and the banks would still have enough of a margin to lend and make a profit?
     
  9. AsxBroker

    AsxBroker Well-Known Member

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    Technically yes.

    Though realistically whether they pay the banks to borrow money? I don't think it'll happen. They'll just charge some "token" rate like 0.01% or something to that affect...

    Cheers,

    Dan
     
  10. Chris C

    Chris C Well-Known Member

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    It would seem that the good old BOE is planning to cuts its rates to the lowest level in 300 years with most speculating that they are going to cut the rates .75% to 1.25%.

    Makes you wonder how long until they are effectively at 0% with the US and Japan?
     
  11. Billv

    Billv Getting there

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    except now where they use the credit crunch as an excuse to maintain another juicy 1% on top of the norm
     
  12. Chris C

    Chris C Well-Known Member

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    Considering the amount of banking foreclosures in the US and obvious financial difficulties most banks are experiencing I'd argue that a good proportion of those rate hikes were required to keep even Australian bank head's above water.

    That said, the LIBOR has dropped significantly since peak of the credit crunch, and hopefully banks will start passing those savings on in bids to improve market share, after all the financial sector is still a reasonably competitive market.