Interest rate drop ....

moneywolf

How far will the interest rate drop before 2009 ?

I rekon another 1/2 percent at least.

I hope

Squibbler

Hmmm.. the US, and certainly the Japanese particularly, don't have much lower they can go...

gozomark

do you mean in he UK ? If so, could easily fall 2% within weeks unless crisis sorted very quickly

Lynt_3

...........:eek: ...........

john_s_2

I've been wondering about the US rate. It hasn't much further (or is it farther?) to go. Could they offer a negative rate? In other words, they'd pay banks to borrow money (they borrow $100 and only pay back $90, kinda thing*).

That would surely kick start the system?

* I'm not suggesting those sort of rates but just for illustration purposes.

gozomark

john_s wrote: »

I've been wondering about the US rate. It hasn't much further (or is it farther?) to go. Could they offer a negative rate? In other words, they'd pay banks to borrow money (they borrow $100 and only pay back $90, kinda thing*).

That would surely kick start the system?

* I'm not suggesting those sort of rates but just for illustration purposes.

its rare, but negative interest rates have happened - one example was Switzerland

Richard_Cocks

Japan has had negative interest rates before too I think.

And remember, going from 5% to 4.5% isn't a 0.5% drop, it's actually a 10% drop!

People like to report percentage points or "basis points" to hide the true size of change.

john_s_2

I've been Googling and found these interesting articles:

http://www.telegraph.co.uk/finance/personalfinance/savings/3166408/Financial-crisis-UK-savers-lose-out-with-negative-real-interest-for-first-time-in-27-years.html
http://economics.about.com/cs/interestrates/a/zero_interest.htm
http://economics.about.com/od/realinterestrates/a/zero_real_rate.htm

The Telegraph points out we already have a real negative rate as the BoE rate is 4.5% while CPI is 4.7%.

And one of the above About articles says: "Some economists believe that a liquidity trap [banks not lending] is just a theoretical construct, not an actual phenomenon".

Well, those economists can wake up and smell the coffee now!

john_s_2

Richard_Cocks wrote: »

Japan has had negative interest rates before too I think.

And remember, going from 5% to 4.5% isn't a 0.5% drop, it's actually a 10% drop!

People like to report percentage points or "basis points" to hide the true size of change.

In fairness, reporting basis point changes is preferable to reporting that it's gone up (or down) by half a percent, as that is the way it's usually reported otherwise. I think most people wouldn't understand that a drop from 5.0% to 4.5% is a 10% drop. But they do understand that it's a drop of 0.5% (in that they would deduce that it's gone from 5.0% to 4.5%) - even if it's actually wrong. If you see what I mean?