Thursday, 6 October 2011

QE2 is launched today

Today, at lunch time, the Bank of England announced the second round of quantitative easing. This time £75bn is to be squirted into the economy.

Here's how they broach the subject...

The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%. The Committee also voted to increase the size of its asset purchase programme, financed by the issuance of central bank reserves, by £75 billion to a total of £275 billion.

Readers of this blog will doubtless be delighted to see the phrase financed by the issuance of central bank reserves in the statement. It's reassuring to know the BoE has this kind of cash just lying around in the vaults. Otherwise, they'd have to print it - and that would be highly inflationary.

And we don't want more inflation. We've already got CPI at 4.5%, more than twice the 2% target, and a rise to 5% is "baked in" due to higher costs coming down the line at us.

Fortunately high inflation isn't a problem. As the Bank says here...

The deterioration in the outlook has made it more likely that inflation will undershoot the 2% target in the medium term. In the light of that shift in the balance of risks, and in order to keep inflation on track to meet the target over the medium term, the Committee judged that it was necessary to inject further monetary stimulus into the economy.

So it seems they expect inflation to fall dramatically in the "medium term" which generally means two years.

In other news today the NHS announced it has discovered a cure for high blood pressure. All patients with a reading of 140/90 or higher will have a 9mm shell "injected" into their hearts, which will cause their BP to fall to 0/0 immediately.

Yes, you can kill an economy, but it's not normally considered the right way to cure inflation.

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