3

I would like to know the impact of interest rates within Monetary Policies in view of Brexit.

An increase in the Monetary stock would lead to a decline (at least in the short-term) in nominal interest rates. Conversely, decrease in money stock can lead to short-term increases in interest rates. What I would like to know is whether there might be significant increases in interest rates during Brexit?

Trajan
  • 659
  • 1
  • 5
  • 17
BitsInForce
  • 131
  • 3
  • Could you please elaborate? Which interest rate, what kind of impact, why do you think Brexit has any role to play. Perhaps polish the phrasing a little as well. – Giskard Jul 01 '16 at 22:10
  • Perhaps I should clarify my question by providing more background explanation: – BitsInForce Jul 02 '16 at 07:51
  • An increase in the Monetary stock would lead to a decline (at least in the nominal short-term) in short interest rates. Conversely, decreased in money stock can lead to short-term increases in interest rates. What I would like to know is whether there might be significant increases in interest rates during Brexit? – BitsInForce Jul 02 '16 at 08:02
  • Why do you think Brexit would cause a decrease in money stock? – 410 gone Jul 19 '16 at 16:04

1 Answers1

0

I agree that Money supply/Money stock is negatively correlated with short-term interest rates.

Since Great Britain has been using the Sterling before and after Brexit, there is no fundamental change in Monetary Policy caused by Brexit. Your (implied) assumption that Brexit causes a change in interest rates is therefore highly speculative.

Rather, the Bank of England's Monetary Policy Committee decides on interest rates based on (forecasted) growth and inflation rates, and a big number of other factors.

The economic performance (and therefore, interest rates) of the UK in the aftermath of Brexit will depend heavily on the negotiated deals between the EU and the UK.

If the UK economy indeed slows down as a response to Brexit, as many assume, the BoE will most likely keep the interest rates down. However, this is not at all guaranteed to happen.

Chris tie
  • 870
  • 1
  • 5
  • 15