Bank of England (BoE) policymaker Megan Greene said on Tuesday that “a careful and gradual approach to removing monetary policy restrictiveness continues to be warranted.”
Further comments
Underlying activity is weak, the labor market has loosened further and the disinflationary process continues.
I’m worried about both the demand and the supply sides of the economy.
I continue to think the risks remain two-sided but skewed to the downside on growth and to the upside on inflation
Given the period of elevated inflation through which we have just come, I think price stability is the key priority.
Noisy data means that it will take longer for me to take comfort from recent disinflationary trends.
I worry about the near-term profile for inflation this year, which in my view now resembles more of a “plateau” than a “hump”.
The risk that our near-term plateau in inflation feeds through into second-round effects is skewed to the upside.
Different end states for central bank balance sheets may create financial arbitrage opportunities for banks, but they are fairly limited.
Financial arbitrage opportunities present incentives for banks to participate in our facilities, this is a feature, not a bug.
There has been a welcome reduction in stigma associated with our repo facilities and a pickup in their usage.
Market reaction
GBP/USD holds higher ground near 1.3615 following these comments, adding 0.81% on the day.
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.
作者：Dhwani Mehta，文章来源FXStreet，版权归原作者所有，如有侵权请联系本人删除。
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