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Negative interest rate discussed

Gers
Posts: 13,329 Forumite


http://www.bbc.co.uk/news/business-21589128
Bank of England's Paul Tucker backs negative rates idea
:eek:
Bank of England's Paul Tucker backs negative rates idea
:eek:
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Comments
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http://www.bbc.co.uk/news/business-21589128
Bank of England's Paul Tucker backs negative rates idea
:eek:
A negative interest rate?
Does that mean the bank will pay me interest on the money I've borrowed from them in the form of a mortgage? i.e. the bank will buy my house for me?
:j:T:beer:Mr Tucker said: "This would be an extraordinary thing to do and it needs to be thought through carefully."0 -
From the article I gather this would be a charge on banks for the deposits they leave with the central bank, thus encouraging them to lend more rather than leave it on deposit.
I would guess the knock on effect for savers could be a Zero interest rate but I can't see it going below Zero for us plebs ... but then again this government seems happy to rewrite all the 'rules' and to hell with the people who have been sensible about their finances ... so who knows.... DaveHappily retired and enjoying my 14th year of leisureI am cleverly disguised as a responsible adult.Bring me sunshine in your smile0 -
Well, QE has been helping banks and financial institutions to deleverage through cheap money and inflated asset prices. As far as I know (and it is difficult to find out) banks are not really lending to each other which is a very bad sign if true. Negative interest rate is a fairly extreme tool to use to get people to spend, it may cause asset price inflation as savers go elsewhere to try to make a return but it will almost certainly devalue the pound which may or may not be a "good thing" depending on the aim of the exercise. I sincerely doubt that QE and negative interest rate will have a real beneficial effect on the actual economy as such, but it certainly seems to have worked wonders for FTSE100, Gold etc etc.
Will need to watch that one with interest.....but I think it is unlikely they will go down that route.
all imho
J0 -
but I can't see it going below Zero for us plebs
Some of us have mortgages directly linked to the BOE rate.
The arguments I've seen before is that mortgage providers would NOT pay mortgage holders even if the contractual rate went below zero, because the contract was never designed to work that way.
I am not a lawyer but that argument doesn't seem to hold to me.
I guess that a test case would be needed.
I believe there was some debate in the past because some people were on BOE-0.27 (or something like that) but I don't believe any mortgage rate has ever actually gone negative (I could be wrong).0 -
I would guess the knock on effect for savers could be a Zero interest rate but I can't see it going below Zero for us plebs
Too right. If savings interest rates ever went negative, that would result in the biggest run on the banks this country had ever seen.
Forget about Northern Rock, forget about the 1920's
Why would anyone hold their money in a deposit account if they would be better off sticking it under the mattress (or in a safety deposit box for the more security sensitive)
Regarding mortgages, I agree that there are trackers linked to base rates and I don't think now saying 'they were never intended to work that way' will be a sufficient argument.
However, I have never seen a mortgage agreement that doesn't include the term that allows it to be called in under 28 days notice.0 -
I understand that your effective mortgage rate would never go below zero, but what about the basis for the tracker, e.g. mortgage tracks 1% above base rate, BOE rate becomes -0.25, would you pay 0.75% or 1% according to most agreements?0
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Too right. If savings interest rates ever went negative, that would result in the biggest run on the banks this country had ever seen.
Forget about Northern Rock, forget about the 1920's
Yep. And forget about the £85,000 savings guarantee too ... that would go on the fire along with all the other broken promises.... DaveHappily retired and enjoying my 14th year of leisureI am cleverly disguised as a responsible adult.Bring me sunshine in your smile0 -
Paul Tucker is missing the point; nominal interest rates are irrelevant.
Real interest rates (i.e. net interest less inflation) are negative already and have been for years now.0 -
Considering they are already doing this in other countries in Europe (and I'm sure I read somewhere that Japan has this too?), then it's likely this will happen in the UK.
But what would be the whole ripple effect of doing this?
We can expect 0 interest rates on our savings but could banks start to implement fees on accounts too?
I guess assets are all going to rise ie. stocks, shares, metals etc
Banks will be loaning more to businesses and potential buyers (the BOE of England's aim after all!) so expect an increase in house prices <big sigh> and more businesses probably catered for the housing market (assuming that people won't have much money to spend on anything else?)
Any other suggestions of where this will lead?0 -
And of course, if the Bank does negative rate, then tracker rate would go even higher! So when the rate goes back to positive, it would cost you even more!0
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