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Jimmy James

Interesting Take On Mpc Rate Rise

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In today's Indie, says only convincing reason why MPC raised rates was worry about increasing money supply and need to reign in asset prices. If so, shows an interesting shift in the concerns driving rate setting at the BoE

http://news.independent.co.uk/business/com...icle1219747.ece

"To be sure, there were factors that might lead a prudent central bank to tighten credit. House prices appeared to be on the rise again. Bank lending to financial institutions was ballooning, possibly feeding speculative activity in capital and commodities markets.

However, the MPC had not previously emphasised these factors in its economic analyses. Members had preferred to foster the impression that, however asset prices behaved, they would keep their eyes fixed on the consumer price target.

...

A new element in policy thinking, highlighted in those minutes, is the growth in broad money supply and lending. There has been especially rapid expansion in recent months in the liquidity of financial institutions. In the year to June, this sector's M4 deposits rose by 31.5 per cent while its borrowing from M4 lenders increased by 29.6 per cent. This expansion in liquidity contributed significantly to the reported 13.7 per cent surge in overall M4 money supply over the period.

The MPC's August minutes noted that the financial institutions' behaviour could "put upward pressure on asset prices, increasing household wealth and potentially pushing up nominal spending". It is a long time since the Bank worried about the money supply, but the numbers are so extreme now that they can no longer be ignored.

Central bankers from Seoul to Frankfurt are worrying about excess liquidity. The Bank of England seems to be joining them in their concern. The problem for the MPC is to change its policy framework to incorporate monetary influences without forfeiting the clarity of the message it sends about its policy actions. The consternation that greeted this month's rate increase shows the MPC has yet to find the solution."

Stephen Lewis is the chief economist at Insinger de Beaufort

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In today's Indie, says only convincing reason why MPC raised rates was worry about increasing money supply and need to reign in asset prices. If so, shows an interesting shift in the concerns driving rate setting at the BoE

http://news.independent.co.uk/business/com...icle1219747.ece

"To be sure, there were factors that might lead a prudent central bank to tighten credit. House prices appeared to be on the rise again. Bank lending to financial institutions was ballooning, possibly feeding speculative activity in capital and commodities markets.

However, the MPC had not previously emphasised these factors in its economic analyses. Members had preferred to foster the impression that, however asset prices behaved, they would keep their eyes fixed on the consumer price target.

.

Given increasing money supply can drive inflation and asset price rises can be driven by inflation this isnt really an amazing insight given the banks primary interest is

...inflation. I guess it's more interesting that the bank is effectively saying CPI is not the optimal proxy measure for inflation. Which of course we all knew already :P

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  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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