Morning folks,

Some updates this Friday:

Timings: finished at 14:40.


Central Banks to the rescue - Zero Interest Rate Policies (but no QE)

Perhaps I shouldn't complain, since this news may have helped to erase some of the losses on my long FTSE trade.

Let's just spend a few moments reflecting on the latest act of monetary desperation.

The new Governor of the Bank of England, Andrew Bailey, has presided over the second emergency rate cute in a week.

Already this month, former Governor Mark Carney erased the two 25 basis point increases he made in 2017-2018 by announcing a 50 point cut in Base Rate.

That decision brought us back to the all-time low of 0.25%.

It's not enough, and the new Governor wants an even more extreme stance to deal with the Coronavirus-related financial panic.

From the Bank's statement:

Over recent days, and in common with a number of other advanced economy bond markets, conditions in the UK gilt market have deteriorated as investors have sought shorter-dated instruments that are closer substitutes for highly liquid central bank reserves.  As a consequence, UK and global financial conditions have tightened.
At its special meeting on 19 March, the MPC judged that a further package of measures was warranted to meet its statutory objectives. 

The result: a cut in the interest rate to a fresh all-time low near the zero bound, at 0.1%, and £200 billion in additional QE.

"When all you have is a hammer, everything looks like a nail" - this is my analysis of the BoE's decision-making process. They are able to cut rates and buy bonds, and so that is what they do whenever the financial markets are scared.

If we weren't already near the zero bound of interest rates, I am certain that they would have cut rates by at least 25 basis points. Maybe even by 50.

But the Bank is not yet ready to announce zero or negative interest rates. Can you imagine the public reaction when they do that?

It can't be too long before they capitulate. Remember that the ECB is stuck at minus…

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