Interest rate cut
Discussion
don'tbesilly said:
Trabi601 said:
This is a disaster. No mortgage, money in the bank. I often wonder if I should just blow it all on cars and holidays. Seems to be the modern way.
You forgot hookers 
Though surely it would be better to lick it off, if it hasn't already run off too quickly and caused a stain somewhere.
rs1952 said:
Jockman said:
AJL308 said:
Is this good or bad?
Potentially good if you have debt, bad if you have savings. The elderly, and of course the main demographic that voted out.
I doubt they thought they were voting to shoot themselves in the foot, but a done job is a done job.
It's a shame that people think everyone else votes for self-interest, and when it's aimed at a Leave audience there's likely to be irony involved. It would be fascinating to know how many Remain supporters voted that way due to self-interest.
vonuber said:
turbobloke said:
Ahem! Would the rough boys please calm down in the back row
As it happens I quote the red rag quite frequently.
For all its faults (definitely can have a very sheltered outlook on the world, some of its opinion pieces can be laughable) it still tries to do some very good journalism. The article on betting shops for instance was first class, and its sports coverage is also very good.As it happens I quote the red rag quite frequently.
There's a helluva lot in the good ol' Grauniad that I find I disagree with quite strongly, but that's no reason not to look for and read the gems it occasionally produces.
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.
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
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.
AJL308 said:
Is this good or bad?
"What would a cut mean for you"https://www.theguardian.com/money/2016/jun/30/uk-i...
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.
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