Tags: goodhart | uk | rate | cut | zero

Goodhart: U.K. Might Cut Rate to Zero

Monday, 27 Oct 2008 10:57 AM

Former Bank of England rate-setting member Charles Goodhart told Channel 4 that the U.K. could cut its interest rate to zero.

Reducing to zero would be a drastic and likely unprecedented decline were it to happen quickly enough. The current Bank of England benchmark rate is 4.5 percent.

"Interest rates will go down from now, by how far and how fast nobody knows,” said Goodhart, a founding member of the Bank of England's Monetary Policy Committee and now a professor at the London School of Economics.

"They could go to zero. They went to zero in Japan in the 1990s when the Japanese had a recession or depression which went on for a long time and was quite severe.”

The bank’s recent cut to 4.5 percent on Oct. 8 was a coordinated move with central banks across Europe and with the U.S. Federal Reserve.

The Fed meets on Tuesday to consider reducing the benchmark federal funds rate, although it has less room to wiggle. It now stands at 1.5 percent, down from 5.25 percent just over a year ago.

A new USA Today survey of 45 top economists predicts the Fed will let rates fall to 1 percent as the economy faces the rising chance of a severe recession.

In the survey, 82 percent of the economists said a cut is a done deal. Of them, 44 see a half-point reduction and 38 percent figure it will be a quarter-point cut.

Cutting a half-point would move rates to a level not seen since mid-2004.

"The financial crisis has finally pushed the economy over into a real recession," says chief economist David Berson at PMI Group, who is betting on a half-point cut.

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Former Bank of England rate-setting member Charles Goodhart told Channel 4 that the U.K. could cut its interest rate to zero.Reducing to zero would be a drastic and likely unprecedented decline were it to happen quickly enough. The current Bank of England benchmark rate is...
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2008-57-27
Monday, 27 Oct 2008 10:57 AM
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