Bank of England Calls Emergency Meeting Over Sterling
September 28th, 2009Via: Telegraph:
The Bank of England has summoned the City’s leading economists to an unprecedented meeting in Threadneedle Street, as the pound plunges amid growing confusion over its radical Quantitative Easing (QE) policy.
The Bank will host a seminar of all London’s major economists next Tuesday – the first time it has invited them in en masse in recent memory – in what has been construed as a sign that it fears market participants are starting to lose faith in its efforts to pump cash into the economy. The move has also sparked speculation that it is poised to announce a major change to the monetary policy framework, although insiders dismissed such suggestions.
It came after the minutes from the Bank’s latest Monetary Policy Committee meeting revealed that the idea of cutting the interest rate banks are paid on the reserves they hold there was not discussed this month. The pound has lurched lower in recent weeks, thanks in part to speculation that the Bank will impose charges on banks for holding excessive amounts of cash in reserve at its vaults. Under QE, it is pumping £175bn into the economy, but much of this cash is sitting in banks’ reserve accounts rather than being recycled and flowing around the broader economy.
The suspicion that the Bank will soon take action to mitigate this has pushed down market interest rates sharply and contributed to an almost 5pc fall in the pound against other leading currencies. It has caused gilt prices and short-term interest rates to fluctuate wildly in recent weeks.
The Bank’s seminar, chaired by deputy Governor Charlie Bean, alongside chief economist Spencer Dale and markets director Paul Fisher, is intended to clear up this confusion. It sparked anticipation in the City not merely because the Bank has a reputation for extreme secrecy, but because some suspect it may come alongside an announcement over the Bank’s reserves policy. Others suspect the Bank is concerned that many think either that QE amounts to printing money, much as Zimbabwe and Weimar Germany did, or that it simply is not working.
However, insiders insisted that although the meeting was unusual, it is merely intended to mark six months since the policy began.
I like the bit you put in bold about how they are concerned that when the Bank of England prints money people might think this is the same as Zimbabwe or Weimar Germany printing money. Because, well…. I mean…. obviously, er….. Well, I’m sure that eventually they’ll explain how it is different this time.
Wait, of course. How could I have been so foolish. This time it is different, doh! This time, they told us and our governments to grab our ankles and bend over for the biggest fiscal injection in the history of humankind. Whereas previously they would have been forced to either kill themselves or go to jail. Hmm.