Time for a large cut in rates

The overnight news that Japan has made a rare cut in rates from 0.5% to 0.3% allied to a $51b economic package to boost its economy will no doubt lead to further calls for interest rate cuts here.

In this morning's FT,Martin Wolf argues that there must be a dramatic cut in interest rates here

It cannot make sense for US rates to be at 1 per cent, while the UK’s are 4.5 per cent. In present circumstances, I would like to see UK rates down to 2.5 per cent.

The negatives to this are further declines in sterling but Martin argues that

In current circumstances, this has to be ignored. In fact, determined action may strengthen sterling, not weaken it

For Japan its move was partly to reduce the value of the yen which is stiffling exports.

Finally though he asks

Both the Bank and the Treasury will also need to examine what they would do if official interest rates fell to zero. This looks highly likely for the US and is conceivable for the UK. That would be the moment for “helicopter money”, with cash sprayed around like confetti.