Financial Regulatory Forum

BoE’s Bean-QE has stimulus effect even after asset buying stops

July 14, 2009

Bank of England    LONDON, July 14 (Reuters) – The Bank of England’s quantitative easing will keep stimulating demand even when the asset-buying programme stops, the central bank’s deputy governor, Charles Bean, said in an interview published on Tuesday.
   Less than a week after the BoE surprised markets by not announcing an expansion of its 125 billion pound QE programme, Bean told the Yorkshire Post newspaper that it was the total amount of QE that is important — not the flow.
   “The one thing that I would like to stress is that we don’t have to keep on making purchases for quantitative easing to have an effect. It is the total stock of purchases that matters,” Bean was quoted as saying.
   The BoE’s asset-buying scheme of mostly gilts is due to finish in the next few weeks and the central bank said last week it would review the scale of the programme next month when it will have its new quarterly forecasts.
   Analysts are divided over whether the central bank will want to do more to pull the economy out of recession.
   Bean was quoted as saying on Monday that the Monetary Policy Committee was monitoring whether it needed to do more.
   In the Yorkshire Post interview, he cautioned that exiting the strategy too early could result in a Japan-style lurch back into recession.
   “But equally we won’t want to leave it too long because it may let the inflationary cat out of the bag which would require us to tighten policy excessively thereafter,” he was quoted as saying.
   Bean said a key difficulty lay in gauging the effectiveness of the policy given its unprecedented nature and the time lag of six months to a year for it to affect the wider economy.
   “It’s most plausible to think that the first thing we will do is raise Bank rate and then sell the assets back over an appropriate timescale in light of market circumstances,” he was quoted as saying.

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