Friday, May 25, 2007
The Mail wades in
Daily Mail: Two more interest rates on cards 'by August'
Let's hope the Mail, for once, is right!
Posted by auntie @ 07:45 AM (162 views) Add Comment
6 Comments
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1. speculatorone said...
This approach of only raising rates 0.25 here and there, and all that junk mail the banks send out, it is not very environmentally friendly is it?
I hope David Milliban will be taxing them......
2. Pr said...
Speculatorone, the approach is very reactionist, like, reacting to the 3.1% CPI with a rise is 2yrs too late, given that rates can take that long to feed through into the system. With the BOE raising rates cautiously and waiting to see the effect, they can never be ahead of themselves and that approach alone sends alarm bells ringing. If I'm right, and the BOE is raising interest rates purely on the changing present situation, then they are 2yrs behind on where rates should be, and maybe they have been 2yrs behind ever since they cut rates down to 3.5%. That does not bode well and, as I mentioned on a previous post, can be blamed on divergence between CPI and RPI. A failure to respond to that issue and a failure to tackle new issues like rising liquidity. The bank is simply not flexible enough to spot and respond to emerging trends because of the limited 2% CPI remit and as a result of the lack of true independence.
The BOE really do need to assume more of a precautionary principle and should have a duty to alter their assumptions in line with emerging trends. There really is too much emphasis put on business as usual, so many assumptions that things will settle back down to trend. The realy scary thing is, that the BOE seem to assume that they have some kind of control. The truth is however, that they cannot avoid a crash if they keep interest rates too low for too long, because a correction will occur. With interest rates closer to 5% for the past few years, we would have seen a healthy, but stable house market, inflation slowly reducing stable prices in real terms. Whilst we all wish for a crash now, nobody can suggest that the situation is positive overall, given that many of us could have been paying off a mortgage now rather than renting had fiscal policy been correct and less buy to letters been enticed into an artificially affordable mortgage market.
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4. mrmickey said...
It's death by a thousand cuts, it is becoming clear that the central banks of the world are no longer in control of their money supplies and the UK is no exception. Raising interest rates like this could have very little effect on inflation.
5. Ticktock said...
....but not raising them when inflation is clearly visible to everyone who lives here will destroy what little credibility the bank retains.
Frequent 0.25% rises are meant to dampen inflation 'expectations' (which is all the BOE can possibly hope to affect with monetary policy these days) but it doesnt work when inflation is as high as it really is at present.
The reality of rising prices combined with virtually zero % (real) IRs shows not BOE incompetence, but the total inadaquacy of their whole policy. They are following the fantasy policy prescription of the OECD like good little central bankers and Our Nation is falling apart at the seams as a result.
One only has to look at what 'they' do to those who resist 'full spectrum domminance' with capital controls etc.(like Zimbabwe!) to understand the nature of the real threat faced.
6. dohousescrashinthewoods said...
If it has no effect, will they just keep raising?