Bank of England backed out of bigger rate cut

December 17th, 2008 by admin | Filed under Central banks, Daily News, Global Credit Crisis, Money Management, Recession, UK Banks, World Banks.

The Bank of England considered cutting rates to lower than 2%, minutes from the Monetary Policy Committee (MPC) show.

The MPC voted unanimously agreed nine votes to zero that the minimum cut should be from 3% to 2%.

A deeper rate cut was postponed on concerns that a deeper cut could lead to an “excessive” fall in the exchange rate and could undermine confidence in the economy.

US interest rates passed the final frontier and entered unknown territory as they were cut to just 0.25% – and financial strategy has nowhere else to go.

The US Federal Reserve – equivalent to the UK Bank of England – says the rate will stay at the current low rate “for some time” and the Reserve is looking at other ways to ease the recession.

Wall Street analysts like Holger Schmieding of the Bank of America say the rate is now effectively 0% with odd fraction of a per cent not making any real difference.

“The important factor is what policymakers plan to do now they can’t interest rates any further,” he said.

The Federal Reserve is planning to more ‘toxic’ mortgages and is considering buying long-term US government bonds to beef up the economy.

President-elect Barack Obama said in a speech on Tuesday that his administration would also be doing its bit to stimulate the economy because the central bank could no longer use its main tool to run the economy.

“We are running out of the traditional ammunition that is used in a recession, which is to lower interest rates,” he said. “That’s why the economic recovery plan is so absolutely critical.”

The markets reacted by climbing – the FTSE went up from 4227.6 to 4309.1 and the DOW from8565.65 to 8924.

The Pound had a slightly better day improving against the Euro – from 1.12 to 1.16 and the US dollar from $1.49 to $1.50.

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