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Interest Rate Rises Not Imminent Despite Market Turmoil, Says Mervyn King

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http://www.guardian.co.uk/business/2013/jun/25/interest-rate-rises-markets-mervyn-king

He said: "Certainly I think that the view that we are definitely at the beginning of the end, that we are definitely at the point where we need to raise interest rates, I think is a premature judgement about where we are and no central bank has moved rapidly down that course. The Federal Reserve has merely said that the easing in which it is still engaging may taper at some point depending on economic conditions."

..

"I think people have rather jumped the gun thinking this means an imminent return to normal levels of interest rates. It doesn't," he said.

"Until markets see in place policies to bring about that return to normal economic conditions, there is no prospect for sustainable recovery and without that prospect for sustainable recovery, markets understand that it will not be sensible to return interest rates to normal levels."

So there will be no change in policy for years to come then. Abnormal market conditions to be maintained whilst we search for the end of the rainbow...

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Whilst base rates may not be about to rise we have seen substantial rises in Gilt or government bond yields which look as though they are beginning to impact on fixed-rate mortgage deals.

Impact on the UK

The UK Gilt market mirrored these falls as soon as it opened on Thursday and it too has sustained heavy falls since then. In other words it has been a copy-cat of the US performance.It too had been falling since the beginning of May when our ten-year government bond yield was 1.6% as opposed to the current 2.5%. So we see two combined things here where substantial falls in prices have led to heavy losses for bond investors and the latter stages of this being something of a rout. Also UK bond yields are now well above the levels of last summer although still low if we look back to the earlier stages of the credit crunch let alone the period before...

leading to this

However reality is catching up with the UK mortgage market as this from Money Marketing illustrates.

Brokers are warning a year-long trend of falling mortgage rates could be coming to an end after a recent surge in swap rates.

If we look back to the beginning of May we see that 2 year swap rates were at 0.61% and five years were at 0.94%. This is what has happened since.

Both two and five-year swaps again shot up yesterday, with two-year swaps increasing to 1.01 per cent and five-year swaps to 1.85 per cent.

So we see that fixed-rate mortgages are under upwards pressure and that this is particularly true if you are looking at terms of five years or more. Indeed according to Money Marketing this is already happening.

Today, Newcastle Building Society increased the rate on its 3.59 per cent five-year fixed to 80 per cent loan-to-value to 3.99 per cent, while Hanley Economic Building Society pulled a fee-free 4.2 per cent five-year fixed rate to 90 per cent LTV.

http://www.mindfulmoney.co.uk/wp/shaun-richards/what-are-the-consequences-of-rising-gilt-yields-for-the-uks-mortgage-and-housing-markets/

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Jack the rates you filthy animal or let the debt markets do it for you.

Yes it looks like they will keep singing the same old tune until their hand is forced by external markets, then,

like at the start of the crisis, they can blame the evil outsiders.

Not long to go now chaps. Keep the faith.

Edited by Giraffe

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"Until markets see in place policies to bring about that return to normal economic conditions, there is no prospect for sustainable recovery and without that prospect for sustainable recovery, markets understand that it will not be sensible to return interest rates to normal levels."

In previous interviews of not so long ago, he's said people criticised the Bank for not in the last house price crash/recession (I mean the late 80s/90s), as though justifying all the support measures this time around.

The crash that yes, took down people who were over-leveraged, including Serpico with his BMW, Yamaha, and Honda dealership, with mansion, stables, Bentley and private plane at a renter hangar at the airport, but which allowed millions of young boomers to upsize and others to split up zombie businesses for their own shot at things. They don't want to let go of their gains this time around, when it's them.

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It's totally surreal isn't it. King may as well have said "Under no circumstances should we encourage capital formation". It's not as if capitalism needs actual capital to invest and create products/jobs is it?

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I don't get it, why would they jack up rates when they have a load of debt?

....out of choice of course they wouldn't......but sometimes outside influences mean little choice. ;)

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I am so confused, does the base rate have anything to do with mortgage rates now.

Certainly doesn't seem like it.

Given the levels of debt better hope we don't hit 10%.

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I think even if rates need to rise, which they clearly do, they won't raise them. And even if they do raise them it will be a pathetic 0.25% per year. There are no economic rules any more, otherwise we'd never have 0.5% rates and QE.

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Bank of England: negative rates remain an option

Charlie Bean, deputy governor of monetary policy at the Bank of England, said negative rates could still happen as the Bank mulls ways of boosting lending.

http://www.citywire.co.uk/money/bank-of-england-negative-rates-remain-an-option/a687692?re=24134&ea=221258&utm_source=BulkEmail_Money_Daily_Summary&utm_medium=BulkEmail_Money_Daily_Summary&utm_campaign=BulkEmail_Money_Daily_Summary

Looks like the BofE are trying to undo Benake's work this coming out on the same day as Malyvin Kings statement (I think)

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God everyone is being so negative.

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Newsnight tonight discussed capital investment and rates rising.

Lord Myners said government were making the same mistakes Labour made, stoking up asset bubble.

Redwood is a complete noob BTW.

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it's not just about interest rates(although they are q sizeable chunk of the problem)

it's about excessive interference in pretty much everything, from financial markets to the rest of peoples lives.....where they can buy/sell a car, have a smoke, have a crap, go about hteir daily business etc.

and feudal landlords oughtta read up on history about those who steal too much from the peasants.

.....several french aristocrats,english aristocrats,popes, roman emperors, il duce, honecker, ceausescu etc have found out the hard way what happens to this breed of leader.

....but those who like to assume leadership don't seem to have learned any.

what will it take for these people to get the message?

even gadaffi having a bayonet shoved up his jacksy seems not to have hit home?

just how gruesome does their demise have to be before those who gravitate toward the lust for power,suddenly have a fear of attaining it(that's really the only true leader you want....the one that doesn't seek high office)

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it's not just about interest rates(although they are q sizeable chunk of the problem)

it's about excessive interference in pretty much everything, from financial markets to the rest of peoples lives.....where they can buy/sell a car, have a smoke, have a crap, go about hteir daily business etc.

and feudal landlords oughtta read up on history about those who steal too much from the peasants.

.....several french aristocrats,english aristocrats,popes, roman emperors, il duce, honecker, ceausescu etc have found out the hard way what happens to this breed of leader.

....but those who like to assume leadership don't seem to have learned any.

what will it take for these people to get the message?

even gadaffi having a bayonet shoved up his jacksy seems not to have hit home?

just how gruesome does their demise have to be before those who gravitate toward the lust for power,suddenly have a fear of attaining it(that's really the only true leader you want....the one that doesn't seek high office)

+1

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"I think people have rather jumped the gun thinking this means an imminent return to normal levels of interest rates. It doesn't," he said

"Until markets see in place policies to bring about that return to normal economic conditions, there is no prospect for sustainable recovery and without that prospect for sustainable recovery, markets understand that it will not be sensible to return interest rates to normal levels."

It's only a couple of weeks or so since he was saying that the recovery is in sight. As soon as the idea that interest rates might have to go up (if a recovery is in sight) he's suddenly changed his mind.

He mentioned what he called "the paradox of policy" (i.e. their incompetent policy) in an interview just a few days ago but in actual fact it's evident that he's really suffering from the paradox of being governor and sitting on the fence and not having a fan chart clue about what's going to happen.

Edited by billybong

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"Until markets see in place policies to bring about that return to normal economic conditions, there is no prospect for sustainable recovery and without that prospect for sustainable recovery, markets understand that it will not be sensible to return interest rates to normal levels."

Alongside the hearing, the Treasury committee also published a BoE note that confirmed policymakers would not rule out cutting interest rates below zero – which would mean commercial banks paying the Bank to hold reserves.

Some in the market want the over-leveraged to fail, so they can pick up all types of assets cheap. Not all market participants, consisting of competing interests, are going to turn healthy profits by being forced to trade in an artificial market, with interest rates held so low and QE on top.

There is such as thing as win and lose with markets. Can you have recovery without a crash, and reflation on top of over-inflated house prices?

That negative interest threat may also make the impulse for a crash even more powerful. There must be other options for parking reserves. 0% holding within their own institutions is better than getting charged at the BoE. Or parking reserves with stronger banks/financial institutions, or in the USA. Capital flight.

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Mervyn King is an embarrassment of the highest order, did you hear him on Desert Island Disks?

Clueless.

If hes that clueless, why does he earn so much for doing so little?

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That negative interest threat may also make the impulse for a crash even more powerful. There must be other options for parking reserves. 0% holding within their own institutions is better than getting charged at the BoE. Or parking reserves with stronger banks/financial institutions, or in the USA. Capital flight.

If rates go negative I think it will be a co-ordinated market effort, the big central banks will all cut simultaneously I doubt anyone will risk negative rates on their own.

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  • 239 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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