Finance

Home page

Finance

Bank of England holds rates

09 April 2009 16:15 (UTC +04:00)

Bakuâ€“ APA-Economics. The Bank of England on Thursday froze British interest rates at a record-low 0.5 percent and vowed to continue pumping out billions of pounds under "quantitative easing" in a bid to crack the recession.
"The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5 percent," the British central bank said in a statement.
The BoE, pausing after a series of six interest rate cuts since October, added that it has so far pumped 26 billion pounds (38 billion dollars, 29 billion euros) of new money into the economy.
"The Committee also voted to continue with the programme, announced on 5 March, of asset purchases totalling 75 billion pounds financed by the issuance of central bank reserves," it said.
The bank launched the quantitative easing (QE) plan last month to buy government bonds from commercial banks in an attempt to kick-start lending and unblock the credit crunch.
The BoE added Thursday that the programme would take another two months to complete. The government has already granted permission for it to turn out as much as 150 billion pounds in new money under QE.
Britain entered recession in the second half of 2008 due to the international financial crisis that has also driven growth in the eurozone, Japan and the United States into negative territory.
In response, the BoE has slashed its key lending rate in a series of sharp cuts as it seeks to breathe new life into the struggling economy.
But with British borrowing costs close to zero, Thursday’s decision to put its key lending rate on ice could mark the end of a series of steep rate-cuts, according to economists.
"The BoE’s bringing to an end of the intense interest rate cutting programme that it started last October is no surprise at all," said IHS Global Insight’s Howard Archer.
"The MPC has made it clear that they believe that bringing interest rates below 0.5 percent would have only a very limited positive impact at best and could even be harmful."
He added: "This is primarily due to the negative impact that this would have on banks’ spreads and profitability, and hence potentially their lending."
The decision to hold British borrowing costs was in line with market expectations. Rates remain at the lowest level in the Bank of England’s 315-year history after a half-point cut last month.
Investec economist Philip Shaw added that the troubled economy had begun to turn the corner and that no additional stimulus was required from the BoE.
"To our minds the economy has started to show the very first signs of improving after months of sharp contraction," Shaw said.
"This is likely to have dominated a decision that no further policy stimulus is required for now."
No other details were given about the MPC’s deliberations on their decision to hold interest rates. BoE watchers must wait until April 22, when the minutes from the two-day gathering are slated for publication. Source: AFP