Interest rate cut
Discussion
vonuber said:
Steffan said:
Turning to the interest rates question I do wonder how much room for manoevering the central bankers still have. The possibility of negative interests rates horrify me. Let us all hope that it never comes to that! If it does I do fear for the conseqences to our economy!!
Which would be (in simple terms)?As to the rest, a finance guru may well be along soon to correct what follows as this is my understanding of it and I'm not a banker.
While banks could in theory pass this ^ cost on to retail customers by making them pay to have their money on deposit, customers might well object and put their cash under the mattress instead. So there's less sloshing around in the banks to base lending on.
Yet if the banks were to absorb the costs of negative rates, it would squeeze their profit margin and might make them less willing to lend rather than more in terms of where their appetite for risk would settle.
Sweden has had negative interest rates for over a year iirc. There's a lot online about their plight.
turbobloke said:
Part of the idea is to get banks to lend rather than park piles of cash centrally, as they'd be paying for the privilege. Obvious enough.
As to the rest, a finance guru may well be along soon to correct what follows as this is my understanding of it and I'm not a banker.
While banks could in theory pass this ^ cost on to retail customers by making them pay to have their money on deposit, customers might well object and put their cash under the mattress instead. So there's less sloshing around in the banks to base lending on.
Yet if the banks were to absorb the costs of negative rates, it would squeeze their profit margin and might make them less willing to lend rather than more in terms of where their appetite for risk would settle.
Sweden has had negative interest rates for over a year iirc. There's a lot online about their plight.
So less lending to business, which means business can't expand or cover interim costs as required and down we go?As to the rest, a finance guru may well be along soon to correct what follows as this is my understanding of it and I'm not a banker.
While banks could in theory pass this ^ cost on to retail customers by making them pay to have their money on deposit, customers might well object and put their cash under the mattress instead. So there's less sloshing around in the banks to base lending on.
Yet if the banks were to absorb the costs of negative rates, it would squeeze their profit margin and might make them less willing to lend rather than more in terms of where their appetite for risk would settle.
Sweden has had negative interest rates for over a year iirc. There's a lot online about their plight.
vonuber said:
turbobloke said:
Part of the idea is to get banks to lend rather than park piles of cash centrally, as they'd be paying for the privilege. Obvious enough.
As to the rest, a finance guru may well be along soon to correct what follows as this is my understanding of it and I'm not a banker.
While banks could in theory pass this ^ cost on to retail customers by making them pay to have their money on deposit, customers might well object and put their cash under the mattress instead. So there's less sloshing around in the banks to base lending on.
Yet if the banks were to absorb the costs of negative rates, it would squeeze their profit margin and might make them less willing to lend rather than more in terms of where their appetite for risk would settle.
Sweden has had negative interest rates for over a year iirc. There's a lot online about their plight.
So less lending to business, which means business can't expand or cover interim costs as required and down we go?As to the rest, a finance guru may well be along soon to correct what follows as this is my understanding of it and I'm not a banker.
While banks could in theory pass this ^ cost on to retail customers by making them pay to have their money on deposit, customers might well object and put their cash under the mattress instead. So there's less sloshing around in the banks to base lending on.
Yet if the banks were to absorb the costs of negative rates, it would squeeze their profit margin and might make them less willing to lend rather than more in terms of where their appetite for risk would settle.
Sweden has had negative interest rates for over a year iirc. There's a lot online about their plight.
Inflation becomes more difficult to hold at an acceptable positive level and there's a risk of deflation, as this sets in people spend even less, etc. This like lending is the opposite effect to that intended.
Edited by turbobloke on Thursday 30th June 23:51
turbobloke said:
The situation with restricted lending isn't the only downside - if I got the right end of the stick, people don't spend as much, as having cash makes spending more real than using a card linked to a current account, and economic sentiment is weak as this (-ve rates) is seen as a last chance saloon.
Inflation becomes more difficult to hold at an acceptable positive level and there's a risk of deflation, as this sets in people spend even less, etc. This like lending is the opposite effect to that intended.
So we end up with less consumer spending to stimulate the economy as well.Inflation becomes more difficult to hold at an acceptable positive level and there's a risk of deflation, as this sets in people spend even less, etc. This like lending is the opposite effect to that intended.
A double whammy.
kurt535 said:
fblm said:
That's funny I thought Cameron said all our mortgage rates would go up? Shocker!
check fire: inflation isn't far behind these cuts. inflation from stuffed currency pushing petrol/food up = interest rates up.vonuber said:
turbobloke said:
The situation with restricted lending isn't the only downside - if I got the right end of the stick, people don't spend as much, as having cash makes spending more real than using a card linked to a current account, and economic sentiment is weak as this (-ve rates) is seen as a last chance saloon.
Inflation becomes more difficult to hold at an acceptable positive level and there's a risk of deflation, as this sets in people spend even less, etc. This like lending is the opposite effect to that intended.
So we end up with less consumer spending to stimulate the economy as well.Inflation becomes more difficult to hold at an acceptable positive level and there's a risk of deflation, as this sets in people spend even less, etc. This like lending is the opposite effect to that intended.
A double whammy.
This is how they describe the potentially bad news:
The Economist said:
Whether other effects might prove more benign remains to be seen. The boldness of the move to negative interest rates could convince consumers that central banks are serious about beating deflation — or lead them to conclude that even zero cannot keep inflation and interest rates from tumbling.
I wonder if they meant sub-zero. Anyway...hello deflationary spiral.The potentially good news is this, apparently:
The Economist said:
The best hope for success, however, lies in foreign-exchange markets. Negative rates might send investors in search of better returns abroad, leading to depreciation of the currency. That would raise the price of imports, helping to combat deflation and giving a growth-enhancing boost to exporters.
...
If currencies fall by enough, then negative rates might just pay off — provided that sinking prices elsewhere don't lead ever more of the global economy to take the plunge into sub-zero waters.
http://www.economist.com/blogs/economist-explains/2015/02/economist-explains-15...
If currencies fall by enough, then negative rates might just pay off — provided that sinking prices elsewhere don't lead ever more of the global economy to take the plunge into sub-zero waters.
Carney needs to go.
We need someone who can engender a bit of confidence in the British economy.
Carney is clearly not up to the job.
I'm not sure if the Chancellor still has the authority to sack him, but it would help if we had a Chancellor who believed in our future. If we had a proper Chancellor, then I do believe that Carney would be out on his arse.
We need someone who can engender a bit of confidence in the British economy.
Carney is clearly not up to the job.
I'm not sure if the Chancellor still has the authority to sack him, but it would help if we had a Chancellor who believed in our future. If we had a proper Chancellor, then I do believe that Carney would be out on his arse.
don4l said:
Carney needs to go.
We need someone who can engender a bit of confidence in the British economy.
Carney is clearly not up to the job.
I'm not sure if the Chancellor still has the authority to sack him, but it would help if we had a Chancellor who believed in our future. If we had a proper Chancellor, then I do believe that Carney would be out on his arse.
What a quintessential example of the don4l world view.We need someone who can engender a bit of confidence in the British economy.
Carney is clearly not up to the job.
I'm not sure if the Chancellor still has the authority to sack him, but it would help if we had a Chancellor who believed in our future. If we had a proper Chancellor, then I do believe that Carney would be out on his arse.
You've just monumentally shat the bed, and now you're blaming nurse for trying to clean it up, as opposed to pretending everything is fine, and that you're not actually rolling around in your own excrement.
eharding said:
What a quintessential example of the don4l world view.
You've just monumentally shat the bed, and now you're blaming nurse for trying to clean it up, as opposed to pretending everything is fine, and that you're not actually rolling around in your own excrement.
Excellent You've just monumentally shat the bed, and now you're blaming nurse for trying to clean it up, as opposed to pretending everything is fine, and that you're not actually rolling around in your own excrement.
AJL308 said:
Is this good or bad?
"What would a cut mean for you"https://www.theguardian.com/money/2016/jun/30/uk-i...
sidicks said:
Interest rate cuts that were priced into the yield curve (with a high probability), now confirmed as a certainty?!
Thanks, I had to look up what a yield curve is.The pound went down as a reaction to the 100 going up, due to interest rates...?
I don't even know what question to ask as I don't understand how all these work together...stuff happens.
THis sterling going down, it was expected?
eharding said:
don4l said:
Carney needs to go.
We need someone who can engender a bit of confidence in the British economy.
Carney is clearly not up to the job.
I'm not sure if the Chancellor still has the authority to sack him, but it would help if we had a Chancellor who believed in our future. If we had a proper Chancellor, then I do believe that Carney would be out on his arse.
What a quintessential example of the don4l world view.We need someone who can engender a bit of confidence in the British economy.
Carney is clearly not up to the job.
I'm not sure if the Chancellor still has the authority to sack him, but it would help if we had a Chancellor who believed in our future. If we had a proper Chancellor, then I do believe that Carney would be out on his arse.
You've just monumentally shat the bed, and now you're blaming nurse for trying to clean it up, as opposed to pretending everything is fine, and that you're not actually rolling around in your own excrement.
He opens his mouth at 4pm and hardly puts a positive spin on things and off we go again with things flying up/down.
Did he really need to say anything at all yesterday?
Interest rates are historically on their lows. The ECB rates (European Central Bank) have had their main refinancing rate at zero for a while now and their depo or deposit rate is now -40 bps - in other words they will charge YOU to hold money with them. This is done to try and encourage spending through borrowing and basically the Banks paying very punitive levels of rates on current accounts. What this also tries to achieve (I think) is to generate some inflation of which in the U.K, U.S and Eurozone we have had a very negligible amounts of 0.1/0.2 core. The Federal Reserve in the U.S and the Bank of England are inflation targeting central Banks and they base at least some of their decisions on where the inflation rate appears to be heading. In the U.K over the last few years we have had a very good unemployment rate (around 5% ish) but in real terms no wage growth and with oil prices way off their high and supermarket wars core inflation have been very flat so it has been a dilemma for the Central Banks for a while. Reducing interest rates as Carney hinted at yesterday (monetary easing of policy) will help people with mortgages etc but as rates are so low the overall effect may be very small indeed. It also reduces GBP denominated assets the only saving grace that in large parts of the world rates are very low too.
I am no fan of Carney he made a huge berk of himself 2 years ago at the Mansion House speech saying that interest rates would probably have to go up but then 2 weeks later back pedalled but here and I think he alluded to it yesterday, he said look i told you what I thought before the referendum and I think we are going to experience an Economic shock so I am trying to be 'ahead of the curve'. Someone above mentioned the last resort of negative interest rates...the real last resort is what is termed 'helicopter money'. This is where literally an amount of money is dropped into each persons Bank account thinking they will all go out and spend it and lift businesses, inflation everything.
I am no fan of Carney he made a huge berk of himself 2 years ago at the Mansion House speech saying that interest rates would probably have to go up but then 2 weeks later back pedalled but here and I think he alluded to it yesterday, he said look i told you what I thought before the referendum and I think we are going to experience an Economic shock so I am trying to be 'ahead of the curve'. Someone above mentioned the last resort of negative interest rates...the real last resort is what is termed 'helicopter money'. This is where literally an amount of money is dropped into each persons Bank account thinking they will all go out and spend it and lift businesses, inflation everything.
berty37 said:
Interest rates are historically on their lows. The ECB rates (European Central Bank) have had their main refinancing rate at zero for a while now and their depo or deposit rate is now -40 bps - in other words they will charge YOU to hold money with them. This is done to try and encourage spending through borrowing and basically the Banks paying very punitive levels of rates on current accounts. What this also tries to achieve (I think) is to generate some inflation of which in the U.K, U.S and Eurozone we have had a very negligible amounts of 0.1/0.2 core. The Federal Reserve in the U.S and the Bank of England are inflation targeting central Banks and they base at least some of their decisions on where the inflation rate appears to be heading. In the U.K over the last few years we have had a very good unemployment rate (around 5% ish) but in real terms no wage growth and with oil prices way off their high and supermarket wars core inflation have been very flat so it has been a dilemma for the Central Banks for a while. Reducing interest rates as Carney hinted at yesterday (monetary easing of policy) will help people with mortgages etc but as rates are so low the overall effect may be very small indeed. It also reduces GBP denominated assets the only saving grace that in large parts of the world rates are very low too.
I am no fan of Carney he made a huge berk of himself 2 years ago at the Mansion House speech saying that interest rates would probably have to go up but then 2 weeks later back pedalled but here and I think he alluded to it yesterday, he said look i told you what I thought before the referendum and I think we are going to experience an Economic shock so I am trying to be 'ahead of the curve'. Someone above mentioned the last resort of negative interest rates...the real last resort is what is termed 'helicopter money'. This is where literally an amount of money is dropped into each persons Bank account thinking they will all go out and spend it and lift businesses, inflation everything.
Negative interest rates are the last chance saloon, helicopter money is the second-to-last resort, after Cleethorpes.I am no fan of Carney he made a huge berk of himself 2 years ago at the Mansion House speech saying that interest rates would probably have to go up but then 2 weeks later back pedalled but here and I think he alluded to it yesterday, he said look i told you what I thought before the referendum and I think we are going to experience an Economic shock so I am trying to be 'ahead of the curve'. Someone above mentioned the last resort of negative interest rates...the real last resort is what is termed 'helicopter money'. This is where literally an amount of money is dropped into each persons Bank account thinking they will all go out and spend it and lift businesses, inflation everything.
berty37 said:
...Reducing interest rates...reduces GBP denominated assets...
Thats not really correct. Anything that pays a future stream of cashflows (fixed income cashflows/dividends etc...) that are discounted at a lower rate will likely be worth more. Gilts being the obvious example. It might be correct to say that the value of GBP denominated assets will fall when valued in a foreign currency like USD but that depends how much the fx moves relative to interest rates.Gassing Station | News, Politics & Economics | Top of Page | What's New | My Stuff