The following was released by the Bank of England reflecting on monetary policy on 17th of Sept 2020 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. In that context, its challenge at present is to respond to the economic and financial impact of the Covid-19 pandemic. At its meeting ending on 16 September 2020, the MPC voted unanimously to maintain Bank Rate at 0.1%. The Committee voted unanimously for the Bank of England to continue with its existing programmes of UK government bond and sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, maintaining the target for the total stock of these purchases at £745 billion. The outlook for the economy remains unusually uncertain. The MPC’s central projections in the August Monetary Policy Report assumed that the direct impact of Covid-19 on the economy would dissipate gradually. They were also conditioned on the assumption of an immediate, orderly move to a comprehensive free trade agreement with the European Union on 1 January 2021. Conditional on those assumptions, UK GDP was projected to continue to recover. Activity was also supported by substantial fiscal and monetary policy actions. Nonetheless, the recovery in demand took time as health concerns were expected to drag on activity. The unemployment rate was projected to rise markedly, consistent with a material degree of spare capacity, before declining gradually. Conditioned on prevailing market yields, CPI inflation was expected to be around 2% in two years’ time. Indicators of global activity have been broadly in line with the Committee’s expectations at the time of the August MPC meeting. The sterling exchange rate index has fallen by around 2%, in part reflecting recent Brexit developments. a. Discuss how the bank of England can control the Money supply and interest rates and then reflect on the above actions taken? b. Discuss briefly how do Interest rates affect the economy?
The following was released by the Bank of England reflecting on
The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. In that context, its challenge at present is to respond to the economic and financial impact of the Covid-19 pandemic. At its meeting ending on 16 September 2020, the MPC voted unanimously to maintain Bank Rate at 0.1%. The Committee voted unanimously for the Bank of England to continue with its existing programmes of UK government bond and sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, maintaining the target for the total stock of these purchases at £745 billion.
The outlook for the economy remains unusually uncertain. The MPC’s central projections in the August Monetary Policy Report assumed that the direct impact of Covid-19 on the economy would dissipate gradually. They were also conditioned on the assumption of an immediate, orderly move to a comprehensive free trade agreement with the European Union on 1 January 2021. Conditional on those assumptions, UK GDP was projected to continue to recover. Activity was also supported by substantial fiscal and monetary policy actions. Nonetheless, the recovery in demand took time as health concerns were expected to drag on activity. The
Indicators of global activity have been broadly in line with the Committee’s expectations at the time of the August MPC meeting. The sterling exchange rate index has fallen by around 2%, in part reflecting recent Brexit developments.
a. Discuss how the bank of England can control the Money supply and interest rates and then reflect on the above actions taken?
b. Discuss briefly how do Interest rates affect the economy?
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