Bank of England Preview: No Policy Changes Expected

April 8, 2009

The Bank of England’s 2-day meeting in April will end with an announcement at 11:00 GMT on Thursday.  Six cuts from October to March, including reductions of 50 basis points in each month of the first quarter of 2009, have reduced the British Bank Rate to 0.5% from 5.0%.  At 0.5%, the rate to be paid on the Operational Standing Deposit Facility hits zero, and any additional drop would be likely to produce more harm than benefit.  Accordingly, officials in March shifted the orientation of policymaking to quantitative easing from rate cutting.  At the March meeting, they agreed to buy Gbp 75 billion of assets, funding such by the creation of central bank reserves and concentrating the composition of the asset purchases of medium- and long-term gilts from non-bank institutions.  Minutes from the March meeting of the Monetary Policy Committee indicated that a period of three months (March to May) was envisioned for completing the asset purchases, but officials agreed to review the parameters of the program at their meetings in April and May.  It is unlikely that anything decided in March will be modified.  It’s even possible that no statement of the MPC’s latest thinking will be released immediately, since such is required only when the Bank Rate gets changed.  However, given the newness of quantitative easing and the unchartered waters such represents and in the interest of policy transparency, it would be surprising if the Bank of England statement does not go beyond a concise listing of policy actions decided.

Copyright 2009 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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