MPC Split, Dovish King Outvoted
A quick note. The MPC minutes for June show that Mervyn King was outmanoeuvred by the hawks:
Regarding the stock of asset purchases, five members of the Committee (Charles Bean, Paul Tucker, Ben Broadbent, Spencer Dale and Martin Weale) voted in favour of the proposition [no extension of QE]. Four members of the Committee voted against the proposition. The Governor, David Miles and Adam Posen preferred to increase the size of the asset purchase programme by £50 billion to a total of £375 billion. Paul Fisher preferred to increase the size of the asset purchase programme by £25 billion to a total of £350 billion.
There was also a brief discussion of removing interest paid on some of the “excess” reserves:
The Committee also discussed the possibility of changing the remuneration structure on banks’ reserves at the Bank of England by paying Bank Rate on only a proportion of those reserves. There were drawbacks with such a policy. There would be a large degree of arbitrariness involved in setting meaningful reserve requirements for individual institutions in an environment where their reserves were substantially in excess of the stable norms that had prevailed before the financial crisis. To do so would also change the nature of what was commonly perceived to be meant by Bank Rate, and its relationship with short-term market interest rates.
crazy loonshawks admit they are willing to move, but will “wait and see” how much worse things can get before they bravely step in and rescue us from Eurodoom:
While acknowledging that further stimulus was likely to become warranted at some point, most members noted that there were several key events occurring over the coming weeks that could have a material bearing on the situation in the euro area and that there was merit in waiting to see how matters evolved there before the MPC reached a conclusion on whether to add any further monetary stimulus.
Since disaster or delivery from the Eurocrisis is just around the corner, I’m sure this “wait and see” strategy will work out fine.