British central bank keeps interest rate at 0.5%

Special Report:Global Financial Crisis

LONDON, Apr. 9 (Xinhua) -- The British central bank on Thursday said it would continue to keep its main interest rate at 0.5 percent, the lowest in its three-century history.

The Bank of England, established in 1694, has cut its main interest rate six consecutive times since October. As a result, the rate has declined from October's 5-percent level to the current all-time low of 0.5 percent.

When the central bank lowered the interest rate to 0.5 percent in March, it said that there was no room for additional rate cuts. The bank said that additional cuts would have a negative impact on commercial banks' profitability and potentially on their lending.

Economists believe that the rate would stay at 0.5 percent well into this year and even into 2010. Only when the UK's economy stabilizes in early 2010 and starts to recover later, would the central bank likely begin to gradually raise rates.

According to a forecast from the National Institute of Economic and Social Research, the UK's economy would likely contract 1.5 percent in the first quarter of this year and 3 percent for the year. The institute said that the UK's current economic situation was "very similar" to the economy at the start of the 1980s.

Chancellor Alistair Darling admitted that the Treasury went wrong with the forecast over the depth and length of the UK's economic recession.

In order to help the economy quickly recover from the recession, the central bank adopted a "quantitative easing" monetary policy, namely increasing the money supply for the credit market.

So far, the bank has injected about 26.4 billion pounds into the market through the purchase of gilts and high-quality corporation bonds (mainly gilts).

According to the plan made in March, the central bank would create 75 billion pounds. If needed, another 75 billion pounds would be provided.