Talk about rationalisation after the fact. The one thing consistent about the Bank of England’s communications over QE has been its inconsistency. Officials always insist the policy has worked, but have repeatedly changed their stated intermediate objectives for QE and how they were judging its success. The Bank’s communication around QE has been a classic example of “policy-based evidence-making”. Gordon Brown, the master of the dark art, would approve.
Today, as the Monetary Policy Committee has just announced a pause in the creation of money and purchases of assets, it has said almost nothing about QE, except that £200bn was the “appropriate” amount to “to keep inflation on track to meet the 2 per cent inflation target over the medium term”. QE and low interest rates would, in any case, “continue to impart a substantial monetary stimulus to the economy for some time to come,” the MPC continued.
I am deeply indebted to Jessica Winch, who analysed all Bank communications over the past year for the Financial Times. She has compiled the following evidence on the QE and the Bank.
This first chart compiles the intermediate objectives for QE that the MPC has declared are important in 2009 with colour coding to represent the proportion of the total times in a month a particular objective was aired. Red means that objective was not mentioned in the month and the proportion of mentions rises through orange, yellow and lime until bright green represents a reason that was used more than 30 per cent of times in a particular month.
Without getting bogged down with the precise figures – there was a dearth of statements for example in September and December so those months have been excluded – it is obvious the Bank has flipped and flopped over the intermediate objectives for QE last year. It was all about expanding the money supply and the price of corporate bonds until it wasn’t; it had little to do with Read more
Export-dependent Japan wants the carry trade back, apparently. A carry trade involves borrowing in a cheap currency to invest in one with a decent rate of return. The cheap currency of choice has been, for years, Japan. Recently there was much excitement that the mantle was passing to the USA. But Gillian Tett says Japan is fighting back.
The Japanese want the yen to be borrowed because it increases the quantity of yen and decreases its price. A lower yen means Japanese exports become more attractive internationally. Read more
The Chinese central bank has said that mainly focusing on inflation is not enough. “China’s monetary policies are aimed at achieving multiple goals, rather than just a solitary effort to control inflation,” said governor Zhou Xiaochuan. Other goals include ensuring economic growth, keeping a relatively high employment rate, and securing the international balance of payments, he said.
The People’s Bank of China says it will target “moderate” loan growth this year, in contrast to the extremely sharp expansion of credit last year. Loan issuance to industries facing overcapacity must be strictly controlled to avoid credit risks, governor Zhou said. Read more
Jean-Claude Trichet, European Central Bank president, has just announced the next – and last – offer of unlimited 12-month liquidity will be at an interest rate linked to future changes in the main policy rate. I blogged on the attractiveness of such a move yesterday. Mr Trichet insisted the move sent no signals about a future tightening of monetary policy. More on ft.com later…
Related posts: Read more
With deflation entrenched and the yen’s rise against the dollar worrying exporters, speculation swirled that the BoJ was about to announce a return to “quantitative easing” or at least an increase in its government bond-buying programme. So when all the policy board offered was a sideshow offer of cheap three-month loans to commercial banks, the sense of anti-climax was palpable. Read more
The Bank of England’s Mr Quantitative Easing predicted this morning normality returning to the Bank’s balance sheet “at some point”. England is likely to win the world cup “at some point” too. In contrast, Chris Giles of the Financial Times writes that normality will not return for years. Read more
Ryuzo Miyao, a 45-year-old professor at Kobe University, is seen as being broadly in tune with such tenets of current BoJ policy. Read more
The Bank of England has raised the total amount of quantitative easing by £25bn to £200bn. This should be seen as a gradual ending of the flow of QE, with gilt purchases over the next three months now considerably slower than the issuance of new government paper, writes Chris Giles of the Financial Times. The MPC has also revised again how it believes QE is working and made dovish comments about inflation. Read more
Money Supply, a Financial Times blog, rounds up the news for Monday, October 19 Read more
Krishna Guha of the Financial Times discusses the FOMC’s dovish minutes Read more