In a press conference, soon after the Bank of England interest rate cut decision, governor Mark Carney defended the action and said he feared the health of the United Kingdom economy would be in peril if the central bank did not act.
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The BoE’s quarter point rate cut to a record low 0.25 percent boosted shares in Europe while sending already low global bond yields even further down with British yields hitting record lows as gilt prices rose.
The Bank of England cut interest rates to new lows and unveiled a raft of stimulus measures that include resuming a bond-buying programme to pump money into the economy and offer cheap loans to banks.
The Bank of England announced on Thursday the decision to cut interest rates to near nothing, unleashing billions of pounds into the economy, citing the weaker economic outlook after the shock Brexit vote.
Among the other major changes, the BOE (EZU) monetary policy committee made a decision to increase the government bond asset purchase by 60 billion pounds to 435 billion.
The bank will also purchase up to £10bn of corporate bonds.
The TFS – which makes up to 100 billion pounds of newly created central bank funds available at around the BoE’s new Bank Rate of 0.25 percent – would need to be retooled if the central bank cut rates closer to zero, he added.
In order to mitigate this difficulty, the Bank said, they will be “launching a Term Funding Scheme that will provide funding for banks at interest rates close to the Bank Rate”.
Despite these measures, Bank of England Governor Mark Carney insisted BritainAAAs current economic problems are not a repeat of the financial crisis of 2008.
Elsewhere on Friday, BoE Deputy Governor Ben Broadbent said there was “ample evidence” to justify the latest rate cut.
Earlier, Asian stocks rose following a positive lead from Wall Street, as investors look ahead to both the BoE and USA jobs data. Eastern time. The Standard & Poor’s 500 index rose 3 points, or 0.2 percent, to 2,166.
The Bank of England has also signaled that rates could go lower if the economy worsens. “This suggests monetary policy will remain highly accommodative for much of the cyclical horizon”, PIMCO’s head of Sterling Portfolios Mike Amey said in a note.
While the first half of 2016 saw relatively strong growth, this is expected to fall in the second half.
An overnight rally in crude oil prices also sharpened risk appetites, but some caution before the July US nonfarm payrolls report later on Friday limited gains. In a Reuters poll of 49 economists published last week, all but three expected the Bank to cut at least 25 basis points to 0.25%. It was down 1.3 per cent at $1.3154 by early afternoon in London, while stock markets rose.
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Meanwhile, MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.5 per cent, led by gains in resource shares, recovering some ground lost in Wednesday’s 1.5 per cent decline.
