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The pound fell yet again today as it emerged that the Governor of the Bank of England had visited Sweden and held talks last week with its central bank, famed for its super-low interest rates.
The Riksbank is known for having taken the unusual step of lowering the interest rate that it pays on commercial banks' deposits to a negative figure of minus 0.25%. That effectively means that if banks want to lodge their cash at the Riksbank, they have to pay it interest.
In the UK, like other countries, it is the other way around, with the Bank of England paying a modest amount of interest to the banks if they want to deposit cash with it.
Sweden's scheme is keenly watched by other central banks because a negative interest rate could encourage banks to lend more to householders and businesses, rather than opt for the safe option of hoarding cash at the central bank.
Minutes of the last Bank of England interest rate meeting showed the idea of negative interest rates for banks' reserves was not even discussed, so news of Mervyn King's Swedish visit spread talk of a potential U-turn.
Howard Archer, economist at IHS Global Insight said: "The visit suggests that Mr King may well be keen to see, and discuss, at first hand what the initial impact of this move has been."
However, others were dismissive, with Brian Hilliard of Société Gé*érale pointing out that, even in Sweden, the amount of banks' total deposits with the central bank on the negative interest rates was tiny.
With investors looking for any excuse to sell sterling, the pound fell 0.68 cent to $1.5883.
Reader views (1)
Sterling will go down further. The practice where UK residents can go into europe and buy a house cheaply and enjoy a warmer lifestle (Spain), Better healthcare(France) and council tax at less than a third (Everywhere) will draw to a close as the pound drops.
You remember when you could buy a car from across the channel 40% cheaper.It wasent the car that was cheap,the
pound was 40% overvalued. The good old days, 1970', 3 gall petrol £1. 1960's 4 gall petrol 95p. Gone forever.
- Jim Allan, Lake District, 29/09/2009 08:39
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