| CATEGORY: NEWS AND ANNOUNCEMENTS |
Wed 18 Jul 2012
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LONDON (SHARECAST) - The majority of policy makers at the Bank of England (BoE) voted in favour of increasing quantitative easing at the last meeting, while the Monetary Policy Committee (MPC) were unanimous in their decision to maintain the Bank Rate.
However, the Committee said that new initiatives, such as the BoE's Funding for Lending Scheme (FLS), which offers cheap funding to banks to encourage lending, could make a case for an interest-rate cut in the future.
The Bank Rate was held at the record-low 0.5% on July 4-5th, while seven out of nine MPC members voted to ramp up the asset purchase programme by £50bn to £375bn, with Spencer Dale and Ben Broadbent preferring to maintain the programme at £325bn.
The MPC said that FLS is thought to provide material economic stimulus. However, the minutes said that "it was too early to judge with any precision what the economic impact would be and when it might be felt."
"The arguments for and against a cut in Bank Rate at this meeting were the same as before. But the impact of the FLS and other policy initiatives might, in time, alter the Committee’s assessment of the effectiveness of such a rate reduction."
The minutes said: "Several potentially significant events had occurred [since the last meeting], and financial markets had responded to them in a more benign way than had seemed likely at the time of the Committee’s previous meeting. Nevertheless, the prevailing theme from contacts in financial markets had remained one of caution and aversion to risk."
The MPC said that the since the June meeting, following public comments by some policy makers as well as weaker economic data in the UK, short-term sterling interest rates had fallen.
"Forward overnight index swap rates, a proxy for market expectations of Bank Rate, had fallen further below the current Bank Rate of 0.5% at maturities out to at least two years."
BC
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