Minutes from the Bank of England’s last policy meeting on November 4 and 5 have been released. And there are number of points to pick over.
The most interesting is that the MPC was split three ways in voting to extend asset purchases by £25bn.
Expressing concerns that more QE could risk unwarranted increases in asset prices, Spencer Dale voted to leave the size of the asset purchase programme unchanged at £175bn, while David Miles pushed for a £40bn increase. The rest, obviously went, for £25bn.
From Reuters:
RTRS-BOE MPC SPLIT 3 WAYS ON NOV QE VOTE,7 BACKED 25 BLN STG RISE,MILES WANTED 40 BLN RISE,DALE NO CHANGE
RTRS-BOE-MPC DISCUSSED CHANGING BANK RESERVE REMUNERATION, AGREED NOT NOW BUT FUTURE OPTION
RTRS-BOE-MPC AGREED ANY QE EXPANSION SHOULD LAST 3 MONTHS, ANY CHANGE BEST CONSIDERED IN FEB
RTRS-BOE-MILES WANTED 40 BLN QE RISE TO PROVIDE GREATER INSURANCE AGAINST DOWNSIDE RISKS TO GROWTH, CPI
RTRS-BOE-DALE THOUGHT MORE QE COULD RISK UNWARRANTED INCREASE IN ASSET PRICES, MAY BE COSTLY TO RECTIFY
RTRS-BOE-WHILE Q3 GDP MAY BE REVISED UP, LIKELY ACTIVITY WAS MORE SUBDUED THAN MPC ANTICIPATED
RTRS-BOE-Q3 WEAKNESS UNLIKELY TO PERSIST INTO Q4, MONETARY STIMULUS, PAST STG FALL SHOULD SPUR ACTIVITY
RTRS-BOE-SEVERAL MPC NOTED MORE QE NOW COULD BRING FORWARD POINT AT WHICH STIMULUS COULD BE WITHDRAWN
RTRS-BOE-MPC UNANIMOUS ON KEEPING INTEREST RATES UNCHANGED AT 0.5 PERCENT IN NOV
Here, meanwhile, is the specific paragraph relating to asset prices:
While recognising the potential benefits of a more expansionary policy given the downside risks to the economy, one member also stressed the potential risks of such a policy. Monetary policy was already extraordinarily stimulatory. The considerable uncertainty about the degree of spare capacity and the behaviour of inflation when output was growing at above trend meant there were risks from attempting to eliminate the margin of spare capacity more rapidly. There was also a risk that further substantial injections of liquidity might result in unwarranted increases in some asset prices that could prove costly to rectify, complicating the task of meeting the inflation target in future. Overall, this member judged that these risks were best balanced by maintaining the current stance of policy.
And there was also a hint of exit strategy to come in the following paragraph on reserve remuneration management:
The Committee discussed the merits of changing the structure of remuneration on commercial bank reserves. A reduction in the rate of remuneration relative to Bank Rate on a proportion of commercial bank reserves would bear down on short-term market rates, and could ease monetary conditions further. The Committee noted that such an action would be unlikely to have a significant impact on the outlook given the already low levels of short-term market rates, and that asset purchases were currently a more effective instrument for affecting monetary conditions. While all members agreed that they did not wish to make use of this option at the present time, they agreed that it might be a useful policy tool in some circumstances, and therefore should be available in future.
Related links:
What’s the fuss over negative deposit rates? - FT Alphaville
Morgan Stanley: The BoE will cut deposit remuneration – FT Alphaville