Thursday, July 10, 2008

Bank holds interest rates at 5%

Bank holds interest rates at 5%

Stagflation!!!!!!!!!!!!!!!!

Posted by matt_the_hat @ 12:05 PM (2247 views)
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22 thoughts on “Bank holds interest rates at 5%

  • Not unexpected. The media are reporting this as the bank holding firm in its fight with inflation by refusing to cut rates, whereas the reality is they are kowtowing to government and business, and continuing to lie down in the face of rampant inflation, by refusing to raise them.

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  • last_days_of_disco says:

    They need to raise rates. Like George Soros says, this is a Greek tragedy.

    You know what is going to happen and there is nothing you can do about it.

    When will people get it, that everything has to be paid for one way or another. All we are doing is delaying and increasing the punishment when it finally comes.

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  • last_days_of_disco says:

    The reality is, its all nonsense because the banks are not going to part with their cash no matter what the BA sets the rates to be.

    Its LIBOR that matters now, not the BOE interest rate and the 12m LIBOR is 6.43% for July.

    Hello, reality check!

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  • True but the interest rate still matters: despite the high Libor, savings rates are still mostly pathetic and for a multitude of reasons (conducive both to the health of the economy and to bringing down house prices) people need to be saving far more than they are. Higher rates would encourage this. And by keeping rates artificially low they add oxygen to the “interest rates are historically low, underpinning house prices….” brigade.

    And we have to face the fact that at some points banks will start lending to each other again, and Libor will incline back towards the official interest rate at that point.

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  • …the “interest rates are historically low, underpinning house prices….” brigade….

    You mean the irresponsible, arrogant and incompetent Gordon Brown?

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  • At least they didn’t drop them, how may Estate Agents etc having saying rates would come down.

    Gordon Brown has everything under control and now he will demonstrate the reason he was prudent during the good times by lowering taxes on house purchases, fuel, gas & electricity with an additional cut in taxes equalling a further £25 per week to the average family to help with the extra cost of food.

    All this will be covered by the money that has been put aside in the good times for the rainy day that would inevitably come.

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  • More infuriatingly biased language from the BBC.

    Clearly this decision does not indicate that the bank’s “inflation worries outweigh concerns over slowing growth”. If that were the case, they would have raised rates.

    A more neutral way to describe it would be that “inflation worries balance concerns over slowing growth”

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  • str – you’re joking but I can see Gordon slashing stamp duty in desperation some time soon. They have already given up on their economic golden rules and at some point soon will throw out every other rule and go after rescuing the housing market with every penny then can beg, borrow or steal.

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  • I bet one member of the MPC voted for a cut…

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  • last_days_of_disco says:

    @pelethar

    “And we have to face the fact that at some points banks will start lending to each other again, and Libor will incline back towards the official interest rate at that point.”

    I really think we are just at the beginning of this. LIBOR is going up, not down. Banks are just going to trust each other less, not more. If I am a bank, trying to preserve what capital and assets I have and the other banks are asking me to loan them money and they are my competitors, would I do it? Or the question is, why would I do it at less than 6.4%? Really, if B&B was asking you for a loan a week ago, would you have granted it?

    When do you think the banks will start reducing their rate to reflect the BOA rate? In a year, two years. I mean, just looking at the US situation.

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  • 5% and holding is a decision based on desperation and fear. Good Professionals !!!

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  • @ Last Days of Disco

    The trouble is if they don’t lend to their competitors they end up having to bale them out anyway.

    I don’t know the details behind this arrangement, if the BoE makes more funds available for the rescue package then banks will go out of their way not to lend to one another.

    If funds are not made available and they just have to rally round to take over fallen banks then maybe they would clud together and lend to one another (on the understanding lax lending was not going on) as this maybe cheaper for them than a rescue.

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  • @8. pelethar

    str – you’re joking but I can see Gordon slashing stamp duty in desperation some time soon.

    I’m not sure he can afford to; he needs every penny he can get his hands on.

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  • The BOE base rate seems to be becoming more and more irrelelavent in relation to the morgage market.So why hold them?They should have raised them now, because no doubt they will have to by the end of the year,if not sooner.Still theres a byelection next week so maybe the labour party where meddling with the decision.

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  • shipbuilder says:

    I posted this yesterday, but no-one picked up on it, so –

    “I was just about to post on the subject of inflation. We keep talking about inflation in terms of oil and food, but, as has been pointed out a number of times (interestingly by gold bulls) – inflation is the increase in money supply. We are in a credit crunch, though, so apart from what the BofE are giving the banks (which is, as far as I know, much less than what was being loaned as mortgages), the amount of money is not expanding. Since (presumably) the majority of the money loaned before went into housing, we saw that expansion of the money supply reflected in housing. Now we are seeing the post-NR splurge by the central banks in the price of commodities, particularly oil.
    I guess what i’m trying to say is – is inflation really a problem during or after a credit crunch?”

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  • Shipbuilder

    Shipbuilder

    I guess to a large extent inflation is kept under control with regard to non essential items as people can choose not to buy them and the manufacturers are forced to keep margins low to remain competative.

    Inflation is hitting very hard on essentials at present (due to the reasons you state), most of which we seem to import and therefore I feel a stronger pound would help this. It’s the earlier rate cuts which I think we’re now paying the price for with the devalued Pound.

    I’m of the view that the B o E has pandered far too much (remember the ’05 rate cut) to the over inflated housing market.

    The housing market IMO should have been curtailed back in 2001/2002 by the government as it was showing signs back then of getting out of control.

    It’s an interesting point you raise with regard to money supply, I’m afraid I don’t know enough to give a qualified answer on that.

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  • mortgage debt has been a huge part of our money supply – now it isn’t

    think in simple terms – it is that simple

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  • if the money supply contracts the economy must contract

    all else is smoke and mirrors

    debt is (has been) over 97% of the money supply

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  • those calling for higher interest rates are asking for an increase in wealth extraction

    when ‘they’ create the debt.money, ‘they’ don’t create the interest.

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  • ShipBuilder ..

    What we are seeing is the”inertia” effect. The force (lets say energy) that created the problem (credit expansion after 9/11) has already happened. The credit crunch is basically the “energy” breaking the natural saftey barrier (i.e. peoples ability to pay back the debts). The question now is not if this “energy” force will slow down but when and how big the explosion is when it finally lands.

    The actual end of of this “financial event” is not yet here. The government have spun the whole thing hard saying to the people that it’s just a question of banks lending to each other again. Thats not the problem. The banks cannot lend what they dont have! If there balance sheet says they owe 12 billion dollars how the hell can they lend out the 1 billion in their accounts? What if someone comes for their 12 billion? The bank would die. Thats why there is no lending. And if you do lend as a bank, you gonna charge a crazy premuim because the risk to your survival is so high.

    The reality is any of the major banks could disappear right now if they allow themselves to be exposed by not having enough dough to pay of their debts. The only ones who aren’t in problems arer HSBC and Goldmans (that I’m aware of). It is REALLY serious out there.. Gordon and co.. (and some newspapers) are just lying to us…

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  • I don’t think the BOE gives a stuff about inflation or the housing market what it’s really worried about is the banking system and the effect raising interest rates will have on that. As things stand the housing market is beyond saving anyway and fiddling with interest rates won’t help it.

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