BOE action - Overdue or overkill and what does it mean for the pound?
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The Old Lady hath spoken
As cable drops below 1.3200 to a low of 1.3156 have the BOE done the right thing?
My thoughts are well know so it won't be a surprise to hear that I think they've done too much too soon and in completely in the wrong manner.
I'll point you once again to the flannel in their statement;
"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. This monetary policy action should help reinforce the transmission of the reduction in Bank Rate to the real economy to ensure that households and firms benefit from the MPC's actions. In addition, the TFS provides participants with a cost effective source of funding to support additional lending to the real economy, providing insurance against the risk that conditions tighten in bank funding markets."
This whole sections is an admittance that the effects their measures will create more problems than solutions. How is that a fix? After everything that's come before it, firms and households shouldn't have a problem borrowing. Firms and households should already be benefitting from prior BOE actions. If they're not then there's something fundamentally wrong with their policies and systems.
The UK needs a proper fix and proper confidence boosting measures, not more of the same mutton dressed as lamb.
Pound shorts will love this extra easing. The larger risk now is that Carney backs it up with promises to do much more in the future and acting now, it seems nailed on that he will. This isn't the time to think about longs for the long haul just yet.
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