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Bank of England Governor Mervyn King said policy makers are prepared to reduce interest rates as low as needed to prevent a recession from fueling deflationary pressures.

Asked whether he would take rates to zero, King said today policy makers “are prepared to cut bank rate to whatever level is necessary'' to make sure inflation hits the central bank's target. The Bank of England's forecasts, published today, said inflation may slow “well below'' their 2 percent goal in 2009.

The pound dropped to a record low against the euro after King today forecast a deepening recession. The bank has already trimmed the benchmark rate twice in the last month, reducing it by 1 1/2 percentage points last week to a five-decade low of 3 percent.

The downturn has worsened in the past month, reports show. Unemployment rose at the fastest pace in 16 years in October, house prices are falling the most in a quarter century and manufacturing is in its worst recession since the early 1980s. Until last week, the central bank's benchmark was the highest among the Group of Seven nations.

“Today's inflation report is a courageous acknowledgment that they are definitely behind the curve and quick action is definitely needed,'' said Chiara Corsa, an economist at UniCredit MIB. “Risks of a deflation scenario loom at the horizon.''

Pound Decline

The pound dropped to 82.38 pence per euro, extending its decline this year to 10 percent. Against the dollar, it dropped to the lowest since August 2002, falling to $1.5201 and has lost a quarter of its value since January.

The deterioration in the U.K. currency can be “a helpful part of the rebalancing, provided it doesn't affect our ability to meet the inflation target,'' King said. The bank has “no wish to see it fall very sharply.''

The Bank of England's key rate is now the second-highest among the Group of Seven nations. The Federal Reserve last month lowered its main rate to 1 percent, matching the lowest in a half century, and this month the European Central Bank cut its benchmark by a half point to 3.25 percent.

The Bank of England's forecasts show the U.K. economy will contract through 2009 and inflation will slow below the government's 1 percent minimum unless it cuts rates further short term cash loan.

Deflation Concern

Slowing growth and falling commodity prices are sparking concerns that inflation could give way to deflationary pressures. U.K. manufacturers' raw material costs and output prices fell at the fastest pace in 22 years in October, the Office for National Statistics said Nov. 10.

The central bank's forecasts, presented as fan charts, show deflation has slipped into the range of possible outcomes over the next three years and King conceded there's a “risk'' that consumer prices will start to fall. The bank's central forecast is still for an inflation rate just over 1 percent, based on market interest rate expectations.

The Bank of England tries to hit a central inflation target of 2 percent and is obliged to keep it within a range of 1 to 3 percent.

Today's report prompted some banks to lower forecasts for the benchmark U.K. interest rate. Barclays Capital and BNP Paribas forecast a 1 percentage-point reduction at the December decision, compared with an earlier prediction for a half-point cut.

King, fielding criticism that he underestimated the risks facing the economy, said “the world has changed'' since the collapse of Lehman Brothers Holdings Inc. in September.

“We have seen the biggest banking crisis since the outbreak for the First World War and arguably even bigger than that,'' he said. The forecast revisions are the largest the Bank of England has made since gaining rate-setting authority in 1997.

In a television interview pooled among broadcasters, King said that while the U.K. faces “unprecedented times,'' the economy may improve as soon as next year.

“I think 2009 will be a difficult year but I would hope that by the end of that we would start to see clear signs of improvement,'' he said.

“When the facts change, then we'll change bank rate,'' King said. “That's what we've done, and we're ready to do it again.''

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Bank of England Governor Mervyn King should stop giving banks “lessons in morality'' and focus on preventing financial collapse, said Patrick Minford, a former adviser to Margaret Thatcher.

“The bank has been detached and not got the point that we have serious disarray in financial markets,'' Minford, who is now an economics professor at Cardiff University, said today in an interview. “Its role is to get in there and sort it out, not make quasi-regulatory moralistic noises at this stage of the game.''

King will next week unveil a planned revamp of money-market operations to help the banking system weather the crisis. The Bank of England, which joined a global round of surprise rate cuts this week, has yet to reduce the penalty on emergency loans and the mortgage securities it accepts as collateral must have the highest credit rating.

“I think the bank has performed so badly it's asking a lot for people to trust them,'' said Minford. “The banks themselves must feel really let down. For the Bank of England to offer extra help in giving banks a good spanking is really offensive.''

The U.K. central bank has so far refrained from lowering the margin at which they set the so-called penalty rate. The European Central Bank halved the margin it charges banks hours after the coordinated rate cuts. The Bank of England's penalty rate is set at one percentage above the benchmark rate, currently 4.5 percent, double the margin set by the ECB.

`Lessons in Morality'

“It is really not King's job to read us lessons in morality at this stage,'' Minford said. “It's to get behind the banking system and avoid the consequences of collapse. That involves a scheme, very broadly drawn in terms of acceptable assets, the broadest range of assets to be accepted by the bank.''

The bank's emergency lending program accepts as collateral residential mortgage-backed securities issued in the U.K. or European Economic Area rated AAA, the highest level. On such securities with a maturity date more than a decade away, it will lend only 78 pounds ($134) for every 100 pounds in loan value, a “haircut'' of 22 percent, its strictest terms. The comparable discount for government debt of similar maturity is 5.5 percent, while government agency debt is discounted by 14 percent.

“The special liquidity scheme has one major flaw: they charge a huge fee to provide liquidity,'' Minford said. “They have been feeding the problem. They need liquidity at base rate, plus a small penalty rate.''

The U.S. Federal Reserve and other central banks on Oct. 8 delivered a coordinated round of interest-rate reductions to protect economies from the worst financial market crisis since the Great Depression. The Bank of England cut its rate by half a point after keeping it unchanged at 5 percent since April.

`Kicking and Screaming'

“The Bank of England's behavior has been a major contributor to the crisis,'' Minford said. “They've been dragged kicking and screaming into the role they've been forced to undertake.''

Former Bank of England policy makers have said more rate cuts will be needed. Christopher Allsopp, a member of the monetary policy committee from 2000 to 2003, said that the bank will probably need to follow the rate cut with “another big one.''

“The Bank of England is now faced with possible meltdown and deflation,'' said Minford. “The central bank needs to get behind the banking system and avoid the consequences of collapse.''

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An obscure U.S. Treasury Department fund that Robert Rubin once used to save the Mexican economy may provide cash to preserve the savings of investors in U.S. money-market mutual funds.

The Treasury will use the $50 billion Exchange Stabilization Fund to insure publicly offered retail and institutional funds, the department said in a statement. The move comes after the Reserve Primary Fund this week became the first in 14 years to break the buck, or drop below $1 a share, exposing investors to losses.

The ESF — a mix of U.S. dollars, euros and yen — was created in 1934. It enables the department to buy and sell currencies to stabilize the dollar. Because it is outside congressional control, Treasury secretaries have been able to tap it for a number of other purposes, including the 1995 bailout of the Mexican economy orchestrated by then-Treasury Secretary Rubin.

The use of the fund in the past “has been very controversial,'' said Peterson Institute fellow Edwin Truman, former head of the Federal Reserve's international-finance division. “It is, on the basis of its prior use, a stretch to use the Exchange Stabilization Fund for domestic financial- stability purposes.''

Record Redemptions

Nevertheless, Truman said it's “appropriate'' for the Treasury to consider all options. Interest rates on the shortest-maturity Treasury securities fell to almost zero this week as money-market funds, fearing redemptions, rushed to raise cash. Investors pulled a record $89.2 billion from the funds on Sept. 17, according to data compiled by the Money Fund Report, a newsletter based in Westborough, Massachusetts.

The Treasury's use of the ESF doesn't always attract headlines payday advance low fees. Late last year and early this year, Secretary Henry Paulson authorized a bridge loan to Liberia to address some technical issues with the African nation's debt-relief transactions at the International Monetary Fund and World Bank.

In 1995, however, Rubin's move drew heavy criticism on Capitol Hill, including calls for his impeachment.

The peso was plunging as Mexico appeared close to defaulting on billions of dollars in short-term borrowings. After Congress refused a direct loan, Rubin persuaded former President Bill Clinton to send Mexico $20 billion from the fund, then talked the IMF into lending another $17.8 billion. Mexico later paid back all the money, with interest.

End Run

This time, an end run around Congress isn't likely to create a huge outcry, said Paul McCulley, a portfolio manager at Pacific Investment Management Co.

“You never can legislate the nature of crisis or how it may unfold,'' he said.

The ESF held $49.97 billion as of the end of August. Treasury officials told reporters they don't expect to use the entire amount, since strict rules that require money-market funds to invest in safe assets will likely prevent widespread failures.

Given that some of the fund is in foreign currencies, using it all domestically would require selling euros and yen, which might be tricky, said Wrightson ICAP chief economist Louis Crandall. However, “it could probably be arranged'' with other central banks, he said.

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Fitch Ratings is withdrawing its underlying A rating on the Orlando-Orange County Expressway Authority’s $203 million refunding revenue bonds, series 2008A.

Due to market conditions, the Expressway Authority did not issue the refunding bonds.

The Orlando-Orange County Expressway Authority is responsible for the construction, maintenance and operation of toll roads in Central Florida bad credit payday loans.

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The world's top central bankers gather at their annual U.S. mountainside symposium today with a sense there's not much more they can do to repair credit markets and rescue the global economy.

Reports in the last week showing a surge in inflation reinforce expectations that Federal Reserve Chairman Ben S. Bernanke will have to keep U.S. interest rates on hold. Similar conditions in Europe are paralyzing his counterparts at the Bank of England and the European Central Bank.

“All the central banks can provide now is time for the banking system to heal,'' Myron Scholes, chairman of Rye Brook, New York-based Platinum Grove Asset Management LP and a Nobel laureate in economics, said in an interview. “What more they have to offer is now very limited.''

Bernanke may discuss his strategy when he opens the conference in Jackson Hole, Wyoming, with a speech on financial stability at 10 a.m. New York time. His audience comprises a who's who of central banking, including ECB President Jean- Claude Trichet, Bank of Japan Deputy Governor Kiyohiko Nishimura and central bank officials from about 40 other countries.

The event, ending tomorrow, has been hosted by the Kansas City Fed in Grand Teton National Park since 1982.

In the U.S., borrowing premiums for banks and corporations are at their highest in months, prolonging the drag on growth. That's after Fed policy makers cut the main interest rate this year at the fastest pace in two decades, introduced three emergency-lending programs and helped Bear Stearns Cos. avert bankruptcy.

`Hope and Pray'

“There isn't a lot they can do'' now, said former Fed Governor Lyle Gramley, senior economic adviser at Stanford Group Co. in Washington. “The Fed really has to hope and pray that credit markets begin to heal by themselves.''

Europe's biggest central banks have refused to jeopardize their price stability mandates by lowering rates and have warned about the danger of bailing out investors.

Trichet's ECB raised its benchmark rate in July by a quarter point to 4.25 percent and the Bank of England is refusing to ease credit even with the U.K. near a recession.

“Many central banks around the world have been in a position where they have been focused on inflation, and they didn't have the same intensity of the slowdown that we saw in the U.S.,'' said former Fed governor Laurence Meyer, vice chairman at Macroeconomic Advisers LLC in Washington, in an interview at Jackson Hole.

`Considerable Stress'

The Fed, while leaving the benchmark interest rate unchanged for its last two meetings, says financial markets “remain under considerable stress.'' One gauge watched by the Fed, the premium for banks to borrow for three months over a measure of the future overnight lending rate, averaged 0.77 percentage point last week, the highest since April no qualifying payday advance.

The Fed's rate cuts also have failed to pass through to the housing market. The average rate on a 30-year fixed mortgage was 6.47 percent last week, about where it was a year ago.

“Higher mortgage rates and sharply tightening credit standards in mortgages have gummed up a key channel through which monetary easing is supposed to stimulate aggregate demand,'' said Mickey Levy, New York-based chief economist at Bank of America Corp., who is attending the symposium.

Pushed the Limits

Apart from lowering rates, Bernanke has pushed the limits of the Fed's powers to ease the crisis in credit markets. In December, he started auctioning 28-day loans to commercial banks. He followed that in March with a $200 billion program to auction Treasuries to investment banks in exchange for mortgage-backed securities and other debt. Bernanke also offered cash loans to other bond dealers that trade with the Fed.

With all these programs in place, Fed officials may be reluctant to do more without assurance that it will ease the credit crisis and not do more harm.

“They have done a lot, and at some point they simply have to give the markets the time needed to heal,'' said former Fed researcher Brian Sack, senior economist at Macroeconomic Advisers.

At the same time, investors are looking to the Treasury Department, not the Fed, to bail out mortgage-finance companies Fannie Mae and Freddie Mac using newly granted authority.

European policy makers, meantime, have refused to be as activist as their U.S. counterparts, arguing that they can't be seen to bail out investors who made risky bets. Trichet says the ECB's “collateral framework has served us pretty well.''

While the Bank of England in April followed the Fed in agreeing to swap damaged mortgage-backed securities for government bonds, Governor Mervyn King has resisted calls from lenders for it to buy securities outright.

Some, such as former Bank of England policy maker Willem Buiter, who will address the meeting tomorrow, argue that the Fed's actions to date store up trouble for the future.

“There will have to be a lot of soul searching about whether central banks, in their rush to forestall a financial disaster, have created moral hazard and perverse incentives on an unprecedented scale,'' Buiter said.

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First Insurance Company of Hawaii said it has lowered its rates for auto insurance by an average of 8 percent.

The company said its new lower rates are effective July 1 for new business and Aug. for renewals. First Insurance said it was able to lower the rates because of its strong financial performance and the quality of its customers.

First Insurance Company of Hawaii, Ltd. is the oldest and largest property and casualty insurer based in Hawaii. It is jointly owned by CNA Financial Corp. and Tokio Marine & Nichido Fire Insurance Company Ltd easy payday loans.