AMI: Interest Rate decision a distraction from lack of liquidity

7 January 2009

Robert Sinclair, AMI Director, says: “With the Monetary Policy Committee due to meet today, most experts confidently predict a further cut in the base rate.

"But in reality the Committee’s decision will have less impact on the real issues in the economy and the mortgage market in particular – the lack of liquidity.

"In reality any reduction in the interest base rate is now unlikely to have the desired effect, as this will not be fully passed on by lenders.

"Any reduction is simply likely to damage savers further.

“It is vital that any further reductions in the base rate do not distract from the real issue of a lack of liquidity in the mortgage market.

"Banks continue to be constrained by increasing capital requirements rather than being universally encouraged to support the wider economy.

“For the market to recover, and for consumers to benefit, the Government must fully implement the recommendations of the Crosby Review of mortgage finance.

"It must do so as a matter of urgency and ensure that sufficient funds are available for lenders.

"AMI will continue to call for these changes while encouraging the MPC to pressure for other changes to reduce the risks of deflation and recession.

"Other options the Government should consider include a Bank for ‘bad loans’, which may help reduce some of the underlying lack of confidence in the market place.”

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