BOE to Print Extra GBP$50B / ECB Agrees to EUR$60B Bond Purchase
- Quantitative Easing is gathering steam. More money out of thin air. Inflation is definitely in the near horizon. It won’t be long before we have a global monetary collapse. Countries of the world will adopt a beggar thy neighbour policy of competitive devaluations. Reuters reports :
The Bank of England stepped up its campaign to boost the struggling economy, raising the size of its asset purchase programme on Thursday in a surprise move tantamount to printing an extra 50 billion pounds to get banks lending again.
The central bank kept rates at a record low of 0.5 percent as expected, but surprised markets by moving swiftly to reassure them that its scheme to buy up government and corporate bonds with newly-created money would last at least 3 months more.
Traders had been worried the Bank would wait until next week’s quarterly Inflation Report, or even next month’s policy meeting, before deciding whether to expand the initial 75 billion pounds of asset purchases, which looked set for completion around the end of this month.
“We are a little taken aback by the decision to increase the quantitative easing target by 50 billion pounds. We had thought it more likely the Monetary Policy Committee would sit and wait to assess the impact of the existing programme rather than expand it right away,” said Philip Shaw, economist at Investec.
“Clearly, committee members have been spooked by some poor backward-looking domestic and international economic data. But the statement also points out that forward looking numbers are showing promising signs.”
ASSET PURCHASE BOOST
The Bank of England’s quantitative easing policy aims to help the economy by ensuring inflation stays close to its 2 percent target even when output looks likely to suffer its worst year since the aftermath of World War Two.
So far, the Bank has spent about 50 billion pounds of the 75 billion pounds it said in March it would spend on government and corporate debt. Chancellor Alistair Darling has authorised the Bank to spend up to 150 billion.
Buying debt with newly created money boosts the money supply and in theory allows banks to lend more freely. It is intended to limit the undershoot in inflation — which fell to 2.9 percent in March — the Bank expects later this year.
“That stimulus should in due course lead to a recovery in economic growth, bringing inflation back towards the 2 percent target. But the timing and strength of that recovery is highly uncertain,” the central bank said. The Bank added it would continue to keep its quantitative easing policy under review.
- ECB looks like following the path of QE. Bloomberg reports :
European Central Bank President Jean- Claude Trichet said the ECB unanimously agreed on a 60 billion- euro ($80.5 billion) plan to buy bonds as officials step up their response to the worst recession since World War II.
“The Governing Council has decided in principle that the eurosystem will purchase euro-denominated covered bonds issued in the euro area,” Trichet told reporters in Frankfurt. He said the bank’s main interest rate, which it cut by a quarter point to a record low of 1 percent today, is appropriate and that the ECB will extend its unlimited auctions of funds to banks.
ECB officials have spent the past months bickering over whether to fight a recession by purchasing assets, with Bundesbank President Axel Weber leading resistance to such a move. The U.S. Federal Reserve, the Bank of England and Bank of Japan have lowered rates close to zero and are already buying bonds, effectively printing money to reflate their economies in a policy known as quantitative easing.
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