Thursday, February 11, 2010

Drip feed removed, patient goes into arrest

In the real world interest rates are going to rise as lenders reprice risk

Yesterday's surprisingly dovish Inflation Report from the Bank of England has got experts scratching their heads. Based on what the Bank is now saying, it seems the Monetary Policy Committee won't be increasing the 0.5pc official Bank Rate for a while. The fact is that interest rates in the market are increasingly divorced from what you read about the official Bank Rate. Central bank support for lenders, such as the £400bn credit guarantee and special liquidity schemes, must start being repaid this month. Removing that source of cheap financing means lenders are being forced to return to more expensive sources of funding. The interest rates in the market that borrowers pay are rising and will continue to rise. The good news, however, is that the rates savers receive are also going up.

Posted by cat and canary @ 01:07 PM (1471 views)
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8 thoughts on “Drip feed removed, patient goes into arrest

  • “The good news, however, is that the rates savers receive are also going up.”

    I don’t wish to appear a killjoy as I’m a saver but I see that Abbey aka Santander have reduced their “market leading” ISA from 3% to 2.75% today.

    Sorry to keep labouring the point but I suggest that savers visit: http://www.saveoursavers.co.uk/

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  • So loan rates are based on the markets while savings rates are based on the meaningless BOE rate of .05%. Now who does that help?

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  • As we (as people) each represent a data set within an overall super-equation (get used to it – everyone and everything is a data set) then as that equation moves to resolve itself it will rid itself of conflicting/bad data, or it cannot resolve.

    My guess is that a fractional reserve ponzi scheme will be some of the first conflicting/bad data to be rubbed out.

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  • Real rates are already rising, just look at yields on gilts and dollar bonds. Incidentally, these are only as low as they are because quantitative easing has been used to bypass the normal market for bonds.

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  • fallingbuzzard says:

    @2, Default savings rate is 1.7%/2% (>£25k) which is NS&I’s position. Anything below that is for suckers. That people take anything less than that demonstrates gross stupidity but thats how it is. Fix for 5 years with a bank or building society and you get a much better rate (5% or thereabouts). Meanwhile, borrowers pay much more. Have you ever thought about disintermediating the banks by funding your family and close relatives? They rant about borrowing rates whilst you rant about savings rates whilst the banks make money on the amount.

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  • “Sorry to keep labouring the point but I suggest that savers visit: http://www.saveoursavers.co.uk/

    I think all the savers should take their money, and set up a new bank that offers a much higher interest rate.

    I say, let the free market decide – s0d BOE and the government!

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  • Hpw, iirc starting a bank requires £20 mil. People, we’re collecting to start a new bank…

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