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Bank of England cuts rate by 25 basis point to 0.25%
04
Aug '16
Courtesy: Bank of England
Courtesy: Bank of England
The Bank of England has today cut Bank Rate by 25 basis point to 0.25 per cent, and introduced a package of measures designed to provide additional monetary stimulus, after the bank's Monetary Policy Committee (MPC) voted for the same.
 
The MPC set the monetary policy to meet the 2 per cent inflation target, and in a way that helps to sustain growth and employment.
 
The 25 basis point cut announced by the bank is the first cut since March 2009.
 
The package of measures announced by the Bank of England include a new Term Funding Scheme to reinforce the pass-through of the cut in Bank Rate; the purchase of up to £10 billion of UK corporate bonds; and an expansion of the asset purchase scheme for UK government bonds of £60 billion, taking the total stock of these asset purchases to £435 billion.  The last three elements will be financed by the issuance of central bank reserves.
 
“The cut in Bank Rate will lower borrowing costs for households and businesses.  However, as interest rates are close to zero, it is likely to be difficult for some banks and building societies to reduce deposit rates much further, which in turn might limit their ability to cut their lending rates.  In order to mitigate this, the MPC is launching a Term Funding Scheme (TFS) that will provide funding for banks at interest rates close to Bank Rate,” the Bank of England said in its monetary statement.
 
The new measures have been taken against a backdrop of other supportive actions taken by the Bank of England recently.  The FPC has reduced the countercyclical capital buffer to support the provision of credit and has announced that it will exclude central bank reserves from the exposure measure in the current UK leverage ratio framework.  This latter measure will enhance the effectiveness of the TFS and asset purchases by minimising the potential countervailing effects of regulatory requirements on monetary policy operations.  
 
The Bank has previously announced that it will continue to offer indexed long-term repo operations on a weekly basis until the end of September 2016 as a precautionary step to provide additional flexibility in the Bank's provision of liquidity insurance.  The PRA will also smooth the transition to Solvency II for insurers.
 
The latest decision to cut interest rates will support the flow of cheap credit into UK's economy and is a pre-emptive attempt to bring the country's economy back to life after the Brexit vote. (RKS)
 

Fibre2Fashion News Desk – India

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