MW: Commentary: Out-of-step Bank of England comes back to reality
By Steve Goldstein, MarketWatch
LONDON (MarketWatch) -- What can a central banker do when interest rates are out of touch with reality?
He can change them -- in a hurry.
And that's what the Bank of England did Thursday when the central bank stunned markets with a 1.5 percentage point rate decline to 3%.
Economists were predicting a half point. Markets were geared for a 75 basis point shift. The outliers were saying a full point. See Bank of England story.
But why not go ahead and cut 1.5 percentage point? And that evidently was the view from the "Old Lady" in its largest-ever rate cut.
There was no need for an industrialized nation that by all assessments -- notably Bank of England Governor Mervyn King -- is in recession to have rates at even 4%.
Whatever the official inflation rates are, asset prices are in freefall, as the house price data released by Halifax on Thursday show. See related story.
And even with the prospect of a plunging British pound, the threat of imported inflation making much of an impact seems remote.
