Sterling and euro interest rates slashed.

Back in the real world UK Interest rates were slashed by 1.5 % to 3% at noon and the European Central Bank by 0. 5% to 3.25%. Further cuts to 1% or less may be expected by the spring. Stand by for a furious political reaction if the banks fail to lower their lending rates soon. The banks themselves almost always fail to put someone up for public comment but will be making statements during the day. Instant NI comment is fair enough but predictable. Livestream of ECB presser via Finfacts from 1.43pm, recording later. How will NI benefit from both cuts? Where elsewhere in the blogsphere can we find informed comment?

Adds. Peston gets different calls from you and me A perfect example of needing money to make money and on the way, help recapitalise the banks

  • Harry Flashman

    Great move, so the sensible people who put their money in savings and pensions get punished again while the eejits who splurged out in the credit boom and caused the mess in the first place are once more rewarded.

  • Glencoppagagh

    Harry
    For you edification:
    Lower rates tend to raise bond prices and should stimulate the stock market. Both good for pension funds.
    Sensible Joes should be diverting their savings into repaying debt or into the stock market while it’s still cheap.
    The trouble is sensible Joes tend to do foolish things like getting lured into stock and property markets at the top.

  • Harry Flashman

    I already paid off all debt two years ago, my pension schemes and mutual funds accumulated over a decade have been slaughtered, my last hope was the cash I have on deposit earning a decent bit of interest, now that’s going down the toilet as the pound starts to resemble the Argentine peso.

    So how did the markets react to the rate cut? Soar like a bird did they? Or keep dropping like a stone?

    Oops they’re still going south, but at least the stupid people’s credit card bills might be marginally less stupid, so that’s good then.

  • Driftwood

    breakingviews.com
    Gets a mention here
    http://www.telegraph.co.uk/finance/breakingviewscom/3391150/Interest-rate-cuts-are-brave-and-bold-but-arent-likely-to-do-much.html

    In the real world, i’ve noticed a distinct downturn of punters at my local, and restaurants (outside belfast anyway)seem to be struggling. Ask anyone in the construction sector and likely the situation will be bleak for the next year or 2. Can the public sector be the last place to hide?

  • Dewi

    “Rates for the largest transporters, known as Capesize, peaked in May at $230,000 a day. It is estimated that the daily cost of running the ships, including depreciation, is about $15,000 but at the end of last week, rates had fallen to $5,982 a day.”

    From From the Times the other day

    That’s sort of like a world wide collapse in trade. I’ve never seen anything like this ever.

  • Glencoppagagh

    Harry
    “So how did the markets react to the rate cut? Soar like a bird did they? Or keep dropping like a stone?”
    The market will have anticipated/discounted a substantial cut but the fact that it was larger than expected will have caused some unease that the outlook is worse than they thought.
    In the long run, the cut will bring down long gilt yields (the risk-free rate) so that equities will look relatively cheap on a yield basis.

    “at least the stupid people’s credit card bills might be marginally less stupid, so that’s good then”
    On the mark here Harry, only stupid people use credit cards for borrowing. Pay them off every month and get up to 50 days free credit.

  • Probably a bit late now but for anyone suffering from the credit crunch i shud point out that many shops in Ballymena have 20% off today (thursday) and a wee bonus – the xmas lites r on.

  • Jean Baudrillard

    I’ll be using the savings from my monthly mortgage bill to try to pay off my grossly inflated Phoneix Gas and NIE bills….

    Net benefit to me – zero.

    Net benefit to the local economy – zero.

  • Glencoppagagh,
    The markets don’t really behave as simply as journalists would like us to think. On any given day, regardless of the direction the stock indices go, journalists will divine some ‘reason’ arbitrarily from the news.

    If stocks went up today, we’d be told “it was because of the bold rate cut”. Given that they went down, you now say “it was because of the bold rate cut”. You can’t have it both ways.

    I’d argue that a single day’s movement on the market isn’t related to what traders think or how they feel about any given news. The usual mechanism may be that rate cuts increase the money supply, causing inflation, which bumps indices up a little. But with interbank lending so tight, there is no cash lying around to push prices up.

    I don’t think it’s that simple, mind you, but I prefer this to the vague idea that all the traders have a talk to discuss their feelings then decide as a group to put prices up.

    On most days, it’s frankly impossible to know why the stocks went any given direction. Intelligent, but unwise, humans love to see patterns in numbers and will convince themselves there are patterns even when there aren’t. A topical example was the hordes of morons who thought they could predict ever increasing house prices based on their knowledge of immigration stats or some other simplistic theory (ignoring that we, in the South at least, were building new houses faster than people were coming in!). Taleb’s book has many examples of this fallacy.

    In the longer term though, it’s not as difficult to spot the bigger problems. For example, this major recession we’re facing has been inevitable given the distortions in the bubble, and the long drawn out stock market correction is simply because the finance industry is very slow to react to the obvious.

  • Comrade Stalin

    In the short term, the banks have some justification for wishing to hold back at least some of the cut. Improving their income means they can improve their capitalization and pay down their debts to the government.

    Harry, savings and pensions are in the stock markets. Money that companies are paying on interest is money that isn’t being declared as profit and is therefore not being paid out as dividends or capital gain to shareholders. That said, I think deposit savings accounts will continue to be pretty good – banks are better off at the moment borrowing from the public than they are borrowing on the money markets.