There is no question that quantitative easing is the only policy option when rates get close to zero. The whole idea is to provide liquidity as the lender of last resort and to inflate the economy. Pore money into the economy to add liquidity and increase inflationary expectations. Higher expectations will push down real rates and decrease the desire to hold money. So what does the Bank of England do? It does not extend it current 125 billion sterling purchase program.
In a brief official statement, the Bank said: “The committee expects that the announced programme will take another month to complete. The committee will review the scale of the programme again at its August meeting, alongside its latest inflation projections.”
So is this an exit of the program? Hard to say but the first law of central banking is to minimize market uncertainty and the BOE has broken the law. The reaction was swift with a gilt sell-off and a jump in sterling that now looks to be reversed. How should we view this? It could be that the Bank o England believes that the program may not be necessary, but even if that was the case there could have been a better way of announcing the change.
The economic numbers are not that good that exit strategy is necessary. PMI manufacturing is still below 50 although PMI services is slightly above 50. Industrial production is still down 11.9% YOY. Consumer confidence is off the laws but still only at levels for last summer. I need help to explain this policy statement.
In a brief official statement, the Bank said: “The committee expects that the announced programme will take another month to complete. The committee will review the scale of the programme again at its August meeting, alongside its latest inflation projections.”
So is this an exit of the program? Hard to say but the first law of central banking is to minimize market uncertainty and the BOE has broken the law. The reaction was swift with a gilt sell-off and a jump in sterling that now looks to be reversed. How should we view this? It could be that the Bank o England believes that the program may not be necessary, but even if that was the case there could have been a better way of announcing the change.
The economic numbers are not that good that exit strategy is necessary. PMI manufacturing is still below 50 although PMI services is slightly above 50. Industrial production is still down 11.9% YOY. Consumer confidence is off the laws but still only at levels for last summer. I need help to explain this policy statement.
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