VIEW: Monday saw Bank of America Research.......>

BOE: VIEW: Monday saw Bank of America Research note that "central banks cannot

declare they are out of ammunition. Instead, in the scrabble to find more

stimulus they consider measures with increasingly questionable net benefits. The

BoE's comments seem to reflect this. They discuss other options now, we assume,

because their preferred ammunition of gilt QE is hitting limits. So they now no

longer rule out negative rates, but suggest other options like wider private

sector asset purchases are in the mix too. We thought the BoE's May MPR raised

the risks of rate cuts. We now expect in August the BoE to cut Bank Rate 10bp to

0%, extend QE by > GBP200bn and improve TFS terms. We do not expect the BoE to

cut interest rates to negative. The calculus elsewhere has not changed. Negative

interest rates challenge credit creation and passthrough would likely be weak.

Some of the 'stimulus' would come via a lower exchange rate which may not be

something the UK needs more of, especially if Brexit talks proceed poorly.

Accordingly, we think a policy rate of 0% is easier for the BoE to contemplate

and they will need to exhaust other options. We see the probability of negative

rates higher for 2021 than 2020. We can't rule it out anymore."