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The Bank Of England May Introduce Negative Interest Rates For The First Time In British History This Week, Economists Said.

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http://www.telegraph.co.uk/finance/economi...s-hoarding.html

The Bank of England may introduce negative interest rates for the first time in British history this week, economists said.

By Amy Wilson

Published: 9:22PM BST 06 Sep 2009

City analysts suspect the Bank may consider cutting the interest rate paid to banks on their reserves with the central bank in an effort to stop institutions hoarding the extra money created by quantitative easing and increase lending. Some think it may even introduce a charge for holding a certain amount of cash with the Bank.

After last month's surprise £50bn increase in the quantitative easing (QE) target, economists expect the Monetary Policy Committee to keep interest rates unchanged at 0.5pc and hold the level of QE at Thursday's September meeting.

But with lending still sluggish, economists suspect a lower or negative interest rate on reserves held with the Bank of England – as proposed by former MPC member Charles Goodhart – could be introduced in the coming months.

"By holding the bank rate steady but lowering the remuneration on reserves, the central bank will encourage banks to diversify their assets and simultaneously maintain borrowing costs for households," said UBS economist Amit Kara.

They expect another £25bn increase in QE before the end of the year, most likely at the November meeting.

Members of the shadow MPC voted unanimously to keep interest rates at 0.5pc, on the basis that QE is the most useful monetary policy tool available

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on the basis that QE is the most useful monetary policy tool available

The music must play on it seems. One tool left and it's starting to look like a bent screwdriver.

(IR rises are coming, IMO.) :ph34r:

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The music must play on it seems. One tool left and it's starting to look like a bent screwdriver.

(IR rises are coming, IMO.) :ph34r:

agreed. the more they cut now, the higher it will swing back.

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in an effort to stop institutions hoarding the extra money created by quantitative easing and increase lending

Labour needs to go back to its founding principles and confiscate all savings held by the class enemies - whether private individuals or institutions.

Use it or lose it should be their new election slogan

Private wealth should only be permitted to those who support the principles of Socialism

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it makes it very hard to save for the 20% deposit needed.

and hard to save for a pension

no worries, government will find money for both.

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Guest UK Debt Slave
http://www.telegraph.co.uk/finance/economi...s-hoarding.html

The Bank of England may introduce negative interest rates for the first time in British history this week, economists said.

By Amy Wilson

Published: 9:22PM BST 06 Sep 2009

City analysts suspect the Bank may consider cutting the interest rate paid to banks on their reserves with the central bank in an effort to stop institutions hoarding the extra money created by quantitative easing and increase lending. Some think it may even introduce a charge for holding a certain amount of cash with the Bank.

After last month's surprise £50bn increase in the quantitative easing (QE) target, economists expect the Monetary Policy Committee to keep interest rates unchanged at 0.5pc and hold the level of QE at Thursday's September meeting.

But with lending still sluggish, economists suspect a lower or negative interest rate on reserves held with the Bank of England – as proposed by former MPC member Charles Goodhart – could be introduced in the coming months.

"By holding the bank rate steady but lowering the remuneration on reserves, the central bank will encourage banks to diversify their assets and simultaneously maintain borrowing costs for households," said UBS economist Amit Kara.

They expect another £25bn increase in QE before the end of the year, most likely at the November meeting.

Members of the shadow MPC voted unanimously to keep interest rates at 0.5pc, on the basis that QE is the most useful monetary policy tool available

Negative IR's huh?

Jaysus..........

I just wonder if that might force another run on the banking system.

Keep calm and carry on folks! Keynesian economics working wonders again

Edited by UK Debt Slave

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Would this have the happy (from the govt's perspective) consequence of encouraging banks to buy more gilts?

Does anyone on here know whether Gilts count as reserves for a bank. Since they are being forced to increase reserves and simultaneously (possibly) offered negative rates on cash it seems that they are being forced into supporting Sterling (and QE) by buying Gilts. Evenually it will be the Banks customers who pay

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The music must play on it seems. One tool left and it's starting to look like a bent screwdriver.

(IR rises are coming, IMO.) :ph34r:

No everything rosey, I think i'll do a bit of shopping though. GET THE WHEELBAROW LUV we need some baked beans.

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...punishing savers with negative deposit rates is the height of stupidity.

... This is eventually going to blow sky high.

See Mish's comments here when Sweden went negative.

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Negative IR's huh?

Jaysus..........

I just wonder if that might force another run on the banking system.

Keep calm and carry on folks! Keynesian economics working wonders again

This is a rather worrying thought... surely they realise that this could create a far bigger banking crisis than the previous one?

If banks started charging interest on bank accounts (to reflect the changes), unless people felt that they were getting a good service (ATMs, debit cards, security etc), they may just pull their cash out and look after it themselves. In fact, they may just change their money out of Sterling, full stop. Why bother using the bits of paper when it may be safer to store wealth in other forms (gold, silver, goods etc)?

This would be a very dangerous game of chicken to be playing, with all sorts of unintended consequences.

Besides, I thought the governments wanted the banks to hold more capital?! WTF do they want/expect the banks to do?!

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AFAIK interest rates have always been negative...when compared with inflation.

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Er.. excuse my ignorance, maybe someone could help. Isn't the talk of negative interest rates in the article those that are levied on deposits by commercial banks on sums deposited with the Bank of England. Isn't this different from the interest rate paid on, say, a personal savings account?

Fanks.

Edited by sossij

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Er.. excuse my ignorance, maybe someone could help. Isn't the talk of negative interest rates in the article those that are levied on deposits by commercial banks on sums deposited with the Bank of England. Isn't this different from the interest rate paid on, say, a personal savings account?

Fanks.

Quite so, but if banks decided to not deposit the money with the BOE then they may well be tempted not to offer any incentive to savers to have their cash at the bank. They many not lend this money out regardless or they may do what a personal account may decide to do - not deposit their money at the bank (in sterling), but deposit it elsewhere in another currency. So end result not necessarily a bank run but a run on the currency.

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Er.. excuse my ignorance, maybe someone could help. Isn't the talk of negative interest rates in the article those that are levied on deposits by commercial banks on sums deposited with the Bank of England. Isn't this different from the interest rate paid on, say, a personal savings account?

Fanks.

Quite so, but if banks decided to not deposit the money with the BOE then they may well be tempted not to offer any incentive to savers to have their cash at the bank. They many not lend this money out regardless or they may do what a personal account may decide to do - not deposit their money at the bank (in sterling), but deposit it elsewhere in another currency. So end result not necessarily a bank run but a run on the currency.

Aren't their cash capital reserves judged by how much they have on deposit with the BoE too? I.e. if they don't deposit the money, they could be technically insolvent in some circumstances. Would this not make it a requirement to have their minimum agreed reserves held at the BoE?

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Quite so, but if banks decided to not deposit the money with the BOE then they may well be tempted not to offer any incentive to savers to have their cash at the bank. They many not lend this money out regardless or they may do what a personal account may decide to do - not deposit their money at the bank (in sterling), but deposit it elsewhere in another currency. So end result not necessarily a bank run but a run on the currency.

Hmmm... not sure I'm getting your point. If a bank can get interest from the BoE for simply depositing it there why bother going to the effort of trying to entice savers at all?

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This is entirely logical to the experts in groupthink.

Debt has funded growth for decades, the growth of debt stalls so does the economy.

If you faced the challenge of creating new growth in the above model what would you do to encourage growth? Somehow you need to stimulate lending and the only way to do that is go negative. We need more debt to create wealth.

This is the belief it's the last throw of the dice.

You may wish to see the above as entirely warped but you clearly lack groupthink.

If you suggest anything else to tackle the problem clearly you don't understand the economic paradigm that we are in and therefore you must be ignored.

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This is entirely logical to the experts in groupthink.

Debt has funded growth for decades, the growth of debt stalls so does the economy.

If you faced the challenge of creating new growth in the above model what would you do to encourage growth? Somehow you need to stimulate lending and the only way to do that is go negative. We need more debt to create wealth.

This is the belief it's the last throw of the dice.

You may wish to see the above as entirely warped but you clearly lack groupthink.

If you suggest anything else to tackle the problem clearly you don't understand the economic paradigm that we are in and therefore you must be ignored.

you are confusing Debt with Investment.

so are bankers.

a Debt is a loan that needs repaying.

banks see lending as Investing and therefore creating wealth.

course, an investment is not a debt....its a buy into a risk...could pay off, or may not.

this is where people get confused....they mean debt is a millstone, investment is wealth. confuse the two and you have debt is wealth.

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Hmmm... not sure I'm getting your point. If a bank can get interest from the BoE for simply depositing it there why bother going to the effort of trying to entice savers at all?

Because the rate of interest is marginal, however if they had the money that would otherwise be at the BOE swimming round there accounts why bother trying to attract savers? As ahas been stated where does whit leave the whole idea of reserves? Having the money at the BOE the money is there for all to see as a reserve. Just more playing with fire idiot central banking - which brought us this problem in the first place when they tried to rig the interest rate market to create fake growth based on debt. This is just more of the same shit. It will have the same result, more risk, more misalocation of capital, more problems.

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