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BOE holds key rate steady and injects cash

THE Bank of England kept its key interest rate on hold at a record low of 0.5 percent yesterday and said that it would continue with its 125 billion pound (US$201.4 billion) planned cash injection into the British economy.

The rate decision surprised no one but most analysts had expected the Bank of England to announce that it was pumping in another 25 billion pounds into the financial system in a further attempt to get banks lending again.

At present, it has only asked for the authority to use 125 billion pounds.

The Bank of England was given the authority by the British government to purchase up to 150 billion pounds worth of assets in March.

Most economists and analysts had thought that the central bank was close to nearly exhausting the stimulus money it currently has access to.

Instead, the Bank of England said in its statement accompanying the rate decision that it will take another month to use up its authorized 125 billion pounds in financial reserves.

By then, the Bank of England will be armed with its latest projections for the British economy.

Analysts reckon that may be a good time for the Bank of England to determine the effects of the government asset purchase program on the wider economy - in particular whether there is clear evidence that lending has increased.

"A further extension through the autumn is needed, and clear communication of the Bank's intentions throughout will be critical in order to prepare the markets," said Ian McCafferty, chief economic advisor to the Confederation of British Industry, the country's biggest business lobby group.


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