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Just read the Saunders speech. Here’s the précis.
Borrowing & lending rates have usually moved with Bank rate. Not so much this cycle. 1/n
Borrowing & lending rates have usually moved with Bank rate. Not so much this cycle. 1/n
Lack of pass-through on deposit rates is because (absent -ve rates for depositors), depositors hit the ZLB. UK not unique here. 2/n
Folks looking for higher mortgage spreads living in pre-GFC wholesale funding world. We live now in a deposit funded world. Mortgage NIMs fine. 3/n
Lack of sensitivity of depo & mortgage rates to Bank Rate a big deal as distorts last 2 of the 4 channels of UK Monpol: FX; CoC & non-housing wealth; cashflow effects on hhlds & their inter-temporal sub; housing. 4/n
Saunders reckons maybe the transmission mechanism maybe goes back to normal when Bank Rate c2%. 5/n
Saunders reckons from this that a 25bp move is less impactful at sub-2% Bank Rate so bolder moves needed for a given desired effect. 6/n
And on policy, it would be silly to move in advance of Brexit. Transition would likely lead to (limited & gradual) has hikes given above trend growth, a closed output gap, rising wages - even in a gloomy global environment. 7/7 bankofengland.co.uk/-/media/boe/fi…
