Banco de Inglaterra: Expansión del programa de compras de activos

Patrick Signoret

La tasa de política monetaria se mantuvo sin cambio en 0.50% y el tamaño del programa de compras de activos aumentó en £50 MMn, como esperaban Tesc y el consenso (Banco de Inglaterra). Seleccionamos estos pasajes:

… the drag from tight credit conditions and the fiscal consolidation together present a headwind. The correspondingly weak outlook for near-term output growth means that a significant margin of economic slack is likely to persist.

CPI inflation has fallen back from its September peak, declining to 4.2% in December. Inflation should continue to fall sharply in the near term, as the increase in VAT in January 2011 drops out of the twelve-month comparison. Inflation is then likely to decline further as the contribution of energy and import prices diminishes, while downward pressure from unemployment and spare capacity continues to restrain domestically generated inflation.

the Committee judged that the weak near-term growth outlook and associated downward pressure from economic slack meant that, without further monetary stimulus, it was more likely than not that inflation would undershoot the 2% target in the medium term. The Committee therefore voted to increase the size of its programme of asset purchases, financed by the issuance of central bank reserves, by £50 billion to a total of £325 billion…The Committee expects the announced programme of asset purchases to take three months to complete.

    Comentarios: 2 comentarios.
    Comments
    Comment from Noble Francis - 2012/02/11 at 4:08 pm

    Genevieve,

    Given that the Bank of England has increased the asset purchase programme (quantitative easing) to £325 billion, the question must be asked of how efficient is the asset purchase programme?

    There are two serious issues as I see it with the current quantitative easing.

    After £225 billion had been used the Bank of England estimated that the effect had been to raise GDP by ‘up to 2%’. So spending 16% of GDP to gain ‘up to 2%’. Not impressive but not a surprise either given that it purely relies on the financial institutions that have the ‘injection’ of funds to lend, which hasn’t happened to any great extent, otherwise all the stimulus does is to shore up the balance sheets of financial institutions. Large firms have found that lending has improved but lending to small and medium size enterprises (who require lending facilities more than large firms as they have no other sources of finance than cash flow and lending) actually fell 6% in the year to November and is considerably below the targets set out under Project Merlin.

    Furthermore, at some point in the medium term (hopefully!) the economic environment will have improved considerably to the extent that the asset purchase programme will need to be reversed. Judging the speed at which this will need to occur will be incredibly difficult.

    A potential solution to these two issues is to use quantitative easing on a different asset, rather than just purely the bonds currently used, to another asset such as housing. The point would be that the reliance on financial institutions to lend has been bypassed and risk surrounding the eventual selling of bonds has been diversified among different assets.

    By setting up a company in which the Bank of England could buy bonds or shares, the company could then develop homes, of which Great Britain has a great shortage (numbers of homes built each year are less than half that necessary to meet the numbers of households created each year). The company could then use the homes for social uses or sell onto the private market to recoup the finance. Using this, you also increase employment (or at least slow down the currently increasing unemployment), increase tax revenue and reduce welfare expenditure.

    This bypasses the problems inherent in current quantitative easing programme of relying on risk-averse financial institutions to lend and also gives the Bank another route to go down when trying to sell the assets once again (you can imagine what would happen to bonds if the Bank ‘accidentally’ dumped too many in one go.

    Housing is not the only asset which could benefit from quantitative easing. I merely use it as an example. However, the Bank of England should be thinking a bit more carefully about how efficiently its asset purchase programme is.

    It would be interesting to get your views.

    Cordialmente,

    Dr F. Noble Francis
    Economics Director
    CPA

    Comment from Genevieve Signoret - 2012/02/14 at 1:04 pm

    Noble,
    Thanks for your comments.
    1. “Spending 16% of GDP” I think is misleading. It created that in new reserves, no? Then swapped two assets, reserves for gilts. I don’t call that spending.
    2. I agree that little lending has resulted. That is, the creation of monetary base has not spurred much money creation, and that, until or unless it does, things won’t improve much, or at all. But we knew that, right? That’s what liquidity traps are all about: everyone preferring liquidity over risk taking, investing, consuming, taking on debt. I don’t think that the BoE was ever fooled into thinking it could reverse that till the process works itself out (the mass of accumulated debt shrinks). I think it seeks to do what it can to create the most fertile possible soil for money supply to grow in. But success requires that other things happen in the economy too. Remember, monetary and fiscal policy are working at cross purposes: the UK government started deleveraging early (in my view, prematurely), leaving the BoE rowing alone to try to move the economy out of a liquidity trap.
    3. I agree that the exit strategy will be crucial, to avoid a burst of high inflation. But inflation’s so easy to fix. Painful, but easy. Far easier than what the UK’s in now. I’m relaxed about the exit, even while expecting some messiness and uncertainty to surround it.
    4. The BoJ is buying real estate fund shares (REITS) and corporate assets. Fed buys mortgaged backed securities to spur mortgage lending. Does BoE really need to set up or collaborate in the setting up of a new company to spur construction? Why couldn’t it simply target the assets that existing creditors to construction already create?
    5. Your emphasis on the risk aversion of banks seems to me incomplete. The level of new lending is a market equilibrium. What about the demand side? Do you have evidence that the problem is on the supply side? (Lok at bank officer surveys. On Twitter you mentioned that SMEs need and want loans. Naturally. But we both know that need alone doesn’t generate demand, which requires willingness to pay and appetites for risk. I think the problem is simply that the real interest rate is still too high, and that QE may help bring it down and thus is worth keeping up. But also that it can’t work as a stand-alone policy.
    6. The bank can sell bonds to soak up liquidity later if need be. Otherwise, just let them mature. Again, I don’t share your worries about the exit strategy. I find them plausible though: I respect them.
    7. Commitment: I’ll read up on strategic BoE exit plan. Surely they’ve published on this; I need to do that homework. I’ll be interested to see how it compares with Fed’s (well communicated) exit strategy.
    8. Your targeted asset purchases are a good idea, one that was used aggressively by the Fed during its lender-of-last-resort (crisis management) activities in 2007-2009 and in round one of QE, and one in use today by BoJ. And I bet it’s plan c or d or something of BoE itself. I’ll check on that too.
    9. Thanks for helping us set my research agenda!
    Genevieve