easy2012 Posted May 10, 2012 Share Posted May 10, 2012 The BoE lends at base rate (in return for very good quality collateral) - that is what the base rate is. It is the BoE's "risk free" lending rate. If a bank has insufficient cash to balance its books at the end of a working day, but has a large stock of gilts, then it can swap the gilts for cash at the BoE, and the BoE will charge base rate on the loan. Under normal conditions, the lending between banks will always be at a higher rate, as typical interbank lending is unsecured (rather than secured on "perfect" collateral). Because of the non-zero risk of default, the interest rate on the loans must necessarily be slightly more than base rate - how much more, depends on what the default risk is judged to be by the lending banks. At the peak of the bubble, the interbank rate had dropped to almost precisely equal BoE base rate, because default by a bank was judged "impossible" by bankers in general. Once NR and the others started to go tits-up, the interbank rate spiralled out of control, as risk started being priced in. In return, the BoE slashed base rate - which in turn lowered the interbank rate (which in effect is BoE base rate + risk premium). Then, after the bailouts, the risk premium reduced, and for the last year or so, interbank rate has been only marginally above BoE base rate. Now that Greece has been nearing implosion, and cracks have been showing in a number of other banks, the interbank rate has been back on the rise. Not exactly. Base rate is the target rate that BoE wants banks to lend to each other. It is an overt threat that if interbank rates deviate from this then it will conduct an open market operation to make sure things go as they would like. It is a bit like the giant government run farm down the road who tells the farmer if they dare sell their milk at prices much higher than the 'official price;, they will flood the market with milk until the 'official price' is achieved. The discount window is what you said - lender of last resort against good (* BoE can be flexible if it has to) collateral. This is normally charged at base + 1%. Quote Link to comment Share on other sites More sharing options...
interestrateripoff Posted July 5, 2012 Author Share Posted July 5, 2012 Thought I'd get in early. Quote Link to comment Share on other sites More sharing options...
interestrateripoff Posted July 5, 2012 Author Share Posted July 5, 2012 http://www.thisismoney.co.uk/money/news/article-1607881/Interest-rates-News-predictions.html In the first half of 2012, forecasts modulated between a mid-2014 and late-2015 prediction.But the fresh turmoil in the eurozone has now pushed the 'first rise' prediction even further into the future. It is also due to the Bank of England's new lending plans for banks [more is explained here] The markets today (2 July) implied the first rise will be ordered in November 2016. Two weeks ago, the forecast had stepped into early 2017. It's a significant shift from the predictions of 'mid-2014' being made at the end of April. Will we eventually see 0.25%? Quote Link to comment Share on other sites More sharing options...
Fishman Posted July 5, 2012 Share Posted July 5, 2012 Thought I'd get in early. What's the chances of 0.25% ? It's tough out here...... Quote Link to comment Share on other sites More sharing options...
Democorruptcy Posted July 5, 2012 Share Posted July 5, 2012 UK 0.25% and £75bn QE ECB 0.5% Quote Link to comment Share on other sites More sharing options...
Fishman Posted July 5, 2012 Share Posted July 5, 2012 UK 0.25% and £75bn QE ECB 0.5% Thanks Merv ps oil has had a bit of a spike today btw ! Quote Link to comment Share on other sites More sharing options...
Lennon Posted July 5, 2012 Share Posted July 5, 2012 UK 0.25% and £75bn QE ECB 0.5% Current Expectations are 0.50% and an additional £50Bn of QE (to go £375Bn Total) - Personally I think that the 0.50% is the effective floor - there is no real advantage to 0.25% and you start to add perverse effects. Quote Link to comment Share on other sites More sharing options...
The Masked Tulip Posted July 5, 2012 Share Posted July 5, 2012 Thanks Merv ps oil has had a bit of a spike today btw ! Iran was making claims last night that it can target US, UK and Israeli bases/cities in the Middle East within minutes. These boys are real attention seekers - like spoilt kids. If no one notices them for a month they come out with some nutty thing... and oil price goes up... Quote Link to comment Share on other sites More sharing options...
Errol Posted July 5, 2012 Share Posted July 5, 2012 These boys are real attention seekers - like spoilt kids. If no one notices them for a month they come out with some nutty thing... and oil price goes up... No different from America. The US is always moving Aircraft carriers and troops around, openly threatening Iran and other nations. They also continue to debate (again openly) the idea of military action in the region and use of force as some kind of negotiating tool. Quote Link to comment Share on other sites More sharing options...
winkie Posted July 5, 2012 Share Posted July 5, 2012 Frozen in time....like the economy. Quote Link to comment Share on other sites More sharing options...
Fishman Posted July 5, 2012 Share Posted July 5, 2012 Iran was making claims last night that it can target US, UK and Israeli bases/cities in the Middle East within minutes. These boys are real attention seekers - like spoilt kids. If no one notices them for a month they come out with some nutty thing... and oil price goes up... I also heard a report ealier in the week (think it was RT) that the Eye-ranians were threatening to block the Hormuz Strait. Just when inflation was coming down as well...... Quote Link to comment Share on other sites More sharing options...
man o' the year Posted July 5, 2012 Share Posted July 5, 2012 Thanks Merv ps oil has had a bit of a spike today btw ! Iran crisis? (recent reports of Hormuz blockade 2 days ago and Iran able to destroy US bases today). Quote Link to comment Share on other sites More sharing options...
Guest_James Toney_* Posted July 5, 2012 Share Posted July 5, 2012 wonder of it will change fro 0.5% today Quote Link to comment Share on other sites More sharing options...
Guest_James Toney_* Posted July 5, 2012 Share Posted July 5, 2012 I'm going for 0.25% cut with free money for the man in the street. How's that for getting the economy on track again. Quote Link to comment Share on other sites More sharing options...
ursus darling Posted July 5, 2012 Share Posted July 5, 2012 printed another £50 BILLION and kept interest rates at 0.5% I hate this country Quote Link to comment Share on other sites More sharing options...
Reck B Posted July 5, 2012 Share Posted July 5, 2012 Base rate cut to minus 1055.75% QE increased to £100,000 million, BILLION, TRILLION , KA-FRICKIN' MA-RILLION They will stop at nothing to stop HPC'ers owning a reasonably priced house. Quote Link to comment Share on other sites More sharing options...
Guest_James Toney_* Posted July 5, 2012 Share Posted July 5, 2012 Base rate cut to minus 1055.75% QE increased to £100,000 million, BILLION, TRILLION , KA-FRICKIN' MA-RILLION They will stop at nothing to stop HPC'ers owning a reasonably priced house. looks like they will not :angry: Quote Link to comment Share on other sites More sharing options...
Guest_James Toney_* Posted July 5, 2012 Share Posted July 5, 2012 printed another £50 BILLION and kept interest rates at 0.5% I hate this country me too totally now, never thought i would ever see the day myself thinking or saying it.. i think they will just keep printing forever :angry: Quote Link to comment Share on other sites More sharing options...
moonriver Posted July 5, 2012 Share Posted July 5, 2012 On Bloomberg the fact that China has just cut their interest rates has drowned out the news from B of E. ...they have cut 1 year deposit rates by 25BPS. Quote Link to comment Share on other sites More sharing options...
interestrateripoff Posted July 5, 2012 Author Share Posted July 5, 2012 On Bloomberg the fact that China has just cut their interest rates has drowned out the news from B of E. ...they have cut 1 year deposit rates by 25BPS. Is that to lock in their recovery? Quote Link to comment Share on other sites More sharing options...
winkie Posted July 5, 2012 Share Posted July 5, 2012 Who are the ones getting their dirty mits on all the QE money....and what are they spending it on, using it for?......how the other few percent live, on the money they have eroded from the rest of the population, the money ordinary honest law abiding people have have worked for, earned and paid taxes on.....this is getting beyond a joke. Answers on a postcard. Quote Link to comment Share on other sites More sharing options...
moonriver Posted July 5, 2012 Share Posted July 5, 2012 They will stop at nothing to stop HPC'ers owning a reasonably priced house. :angry: Very depressing it all is... Quote Link to comment Share on other sites More sharing options...
marlint Posted July 5, 2012 Share Posted July 5, 2012 Who are the ones getting their dirty mits on all the QE money....and what are they spending it on, using it for?......how the other few percent live, on the money they have eroded from the rest of the population, the money ordinary honest law abiding people have have worked for, earned and paid taxes on.....this is getting beyond a joke. Answers on a postcard. The Bank of England use the QE money to buy government bonds on the open market. So it's quite different from just giving out money to people- it is buying an asset off people for a price. Of course their activity in the market increases the price of gilts, giving holders an advantage (holders tend to be banks, pension companies, financial institutions). Quote Link to comment Share on other sites More sharing options...
winkie Posted July 5, 2012 Share Posted July 5, 2012 The Bank of England use the QE money to buy government bonds on the open market. So it's quite different from just giving out money to people- it is buying an asset off people for a price. Of course their activity in the market increases the price of gilts, giving holders an advantage (holders tend to be banks, pension companies, financial institutions). So they use it to recapitalise the financial institutions, who then can lend it out to the general public and businesses at a high price.....free money they can make a charge for....not a bad business model, win if it works, win if it doesn't.....winners all round, fizzy drinks anyone? Quote Link to comment Share on other sites More sharing options...
Democorruptcy Posted July 5, 2012 Share Posted July 5, 2012 Commodity prices have fallen... when was it written? Bank of England maintains Bank Rate at 0.5% and increases size of Asset Purchase Programme by £50 billion to £375 billion 05 July 2012 The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%. The Committee also voted to increase the size of its asset purchase programme, financed by the issuance of central bank reserves, by £50 billion to a total of £375 billion. UK output has barely grown for a year and a half and is estimated to have fallen in both of the past two quarters. The pace of expansion in most of the United Kingdom’s main export markets also appears to have slowed. Business indicators point to a continuation of that weakness in the near term, both at home and abroad. In spite of the progress made at the latest European Council, concerns remain about the indebtedness and competitiveness of several euro-area economies, and that is weighing on confidence here. The correspondingly weaker outlook for UK output growth means that the margin of economic slack is likely to be greater and more persistent. CPI inflation fell to 2.8% in May and is likely to edge down further in the near term. Commodity prices have fallen, which should help to moderate external price pressures. And pay growth remains subdued. Given the continuing drag from economic slack, that should ensure inflation continues to ease into the medium term. At its meeting today, the Committee agreed that the Funding for Lending Scheme, which would be launched shortly, was a welcome initiative. It also noted recent and prospective actions to ease liquidity constraints within the banking system. Taken together with reduced pressure on household real incomes, on the back of lower commodity prices, and the continued stimulus from past monetary policy actions, that should sustain a gradual strengthening of output growth. But against the background of continuing tight credit conditions and fiscal consolidation, the increased drag from the heightened tensions within the euro area meant that, without additional monetary stimulus, it was more likely than not that inflation would undershoot the target in the medium term. The Committee therefore voted to increase the size of its programme of asset purchases, financed by the issuance of central bank reserves, by £50 billion to a total of £375 billion. The Committee also voted to maintain Bank Rate at 0.5%. The Committee expects the announced programme of asset purchases to take four months to complete. The scale of the programme will be kept under review. The minutes of the meeting will be published at 9.30am on Wednesday 18 July. http://www.bankofengland.co.uk/publications/Pages/news/2012/066.aspx Quote Link to comment Share on other sites More sharing options...
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