UPDATE 1-Sterling dives, FTSE flies, after BoE cuts rates and restarts QE

jueves 4 de agosto de 2016 08:57 GYT

(Adds details from BoE press conference, adds new quotes, updates prices)

By Jemima Kelly

LONDON Aug 4 (Reuters) - Sterling sank to an eight-day low and Britain's main share index jumped on Thursday, after the Bank of England surprised markets with a 60 billion pound bond-buying package, and cut interest rates to record lows.

The BoE's interest rate cut, the first since 2009, was widely expected. But economists had been divided on whether the central bank would revive its bond-buying programme, and most of those who had been expecting it had forecast a smaller figure.

British five- and 10-year government bond yields hit record lows of 0.222 percent and 0.675 percent respectively after the policy decision.

The Bank cut its main lending rate to 0.25 percent from 0.5 percent and launched two new schemes, one to buy 10 billion pounds of high-grade corporate bonds and another - potentially worth up to 100 billion pounds - to ensure banks keep lending even after the cut in interest rates.

Having earlier hit a three-week low, the FTSE 100 turned positive, jumping 1.5 percent on the day. The mid-cap FTSE 250 index, dominated by domestically focused companies, extended gains to trade 1.4 percent higher. Lloyds Banking Group and Royal Bank of Scotland, however, hit day's lows.

Money markets immediately moved to price in the chance of the Bank cutting interest rates further, with five-month overnight interbank offered rates falling 5 basis points to 0.1090 percent

"Today's rate cut...did not come as a surprise to the market," said Anthony Doyle, Investment Director at M&G Retail Fixed Interest. "What came as a surprise was the extent of the stimulus package, which could expand the Bank's balance sheet by 170 billion pounds."   Continuación...