Will todays 1.5% interest rate cut help us out of the credit crunch?
The credit crunch is a specific problem regarding the lack of available capital for lending since massive amounts were lost by banks in the US sub-prime market. Reducing the interest rate is not going to reverse the specific problem of the banks being short of capital and attempting to bump up overdraft costs and mortgage costs to redress their own mistakes. I guess this could be the outcome: banks add extra charges onto lending to try and recover their huge losses, but they are able to borrow at a lower rate so the borrower doesn’t end up paying that much more. In practical terms, this drop should have more effects on industry than individuals as companies need to borrow for cash-flow. Cheaper borrowing might keep some companies afloat for a bit longer. The savings on tracker mortgages are just a side-effect (a good one for me..!
