City Talk

Our man with his finger on the pulse of all things in the city, Rob Gill, gives us his weekly update…

A muted response so far to the Bank of England’s initiative to provide £50bn of liquidity to lenders with the benchmark three-month LIBOR edging down only slightly to close the week at 5.87%.

Lenders continue to raise mortgage rates in response to this lack of movement in money market rates, although it’s worth noting that the funding itself is only available from today.

The pricing of this funding has, rather cleverly, been linked to LIBOR rates, thus if financial institutions push LIBOR rates up they’ll pay a higher rate of interest to the BoE

The Royal Bank Of Scotland rights issue looks as if it will be accepted by shareholders, although the eventual price may be the scalp of the chairman or chief executive.

As predicted, other lenders are looking to follow suit with the HBOS board meeting today to discuss a £4bn rights issue of their own.

Global stock markets continued to rally last week as traders speculated that these combined actions of central bank initiatives and the institutional rights issue will eventually bring the credit crunch to an end without an undue slow down in economic growth.

The MPC minutes published last week revealed only a 7-2 vote in favour of April’s 0.25% rate cut.

This was less emphatic than expected which must lengthen the odds of a back-to-back cut in May.

Members have also remarked that they expect the Bank of England initiative to bring down money market and subsequently mortgage rates, and thus another immediate cut in the base rate may not be necessary.

With retail and unemployment figures remaining fairly strong, there’s every chance the MPC may slip into wait-and-see mode in May.