Goldman Sachs sees BOE making a move on rates

Author: Ryan Littlestone | Category: Central Banks

The beleaguered, under fire, rent raping bank is trying to squirm away from the warehouse scandal by giving us its MPC forecast for next week.

They suggest that there is a 50% chance of a change of policy and that could come in the form of a cut in the bank rate, or more interestingly a cut in the remuneration rate.

The remuneration rate (and my knowledge is sketchy at best) is the rate given to UK banks that park their reserves with the BOE. I believe that the the rate is held between MPC meetings and that the banks specify how much they will keep on reserve for that period. Should they adjust the amounts during the period above or below the specified level they get charged.

As far as I’m aware the remuneration rate is the same as the normal bank rate so if the BOE cut the remuneration rate then the banks may be forced to reduce reserves held. The idea would be that the banks would use the reserves to increase lending to the real economy for better returns (fat chance).

Aside from that Goldman’s also see the BOE implementing “state-contingent threshold guidance” which sounds like a tightening of the forecast model that they use for the economy,  basically a nailed down forward guidance. GS say that this threshold will likely indicate the low rates will stay in place until 2016.

There’s not a cat in hells chance of a cut in rates next week, nor an increase in QE, but the remuneration rate theory may be something we shouldn’t discount. Further enhancement of forward guidance can’t be ruled out either.