Carry On Regardless

Following on from my comment on Friday, it’s interesting to note that the Bank of England has so far refused to pump liquidity (Ooh matron) into the UK money markets, and as a result, the UK overnight interest rate is currently 6.5%.

Mervyn King (who is one of the hawks in the MPC) last week said that credit turmoil might be a good thing if it persuaded investors to take a more realistic view of risk, and denied that there is currently an international financial crisis. He may be right, but if the overnight deposit rate remains at 6.5% rather than 5.75%, then monetary policy will in effect be much tighter than the Bank of England has intended.

The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.

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  1. ASteve says:

    While I'm a novice at interpreting financial markets, I was shocked by the reaction of both the Federal Reserve and the ECB. To my mind, if banks are reluctant to lend each other money, then shouldn't we be concerned that they might have good reason for this choice?

    I also read that the Bank of England has permanently available funds which banks can borrow in times of crises – and that this explains why the BoE did not need to make any gestures which, themselves, might influence the markets.

    Personally, I think that a substantial reigning in of debt is exactly what the British economy needs – debt is crippling both to business and society… and we're afflicted at an unprecedented level. Debt is a security today – it carries risk and lenders (in whatever capacity they undertake the risk) should be required to accept the full burden of irresponsible lending. Just because the risks are well hidden does not make them vanish. Re: Carry On Regardless

    Posted on: 13/08/07 | 12:00 am

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