In addition, QE can stimulate the economy by boosting a wide range of financial asset prices. That then in turn pushes down on the interest rates offered on loans, since rates on government bonds tend to affect other interest rates in the economy.īy holding these assets, we aimed to make it cheaper for households and businesses to borrow money, which encouraged spending. ![]() This incentivises a re-balancing of investors’ funds into other types of riskier assets. Our stock of purchases includes assets in the form of government and corporate bonds with the aim of lowering the effective interest rates or ‘yields’ on those assets. Those assets are held in the Asset Purchase Facility (APF). When we made new purchases, we created central bank money and used it to buy UK government debt (‘gilts’) and eligible corporate bonds from private investors in secondary markets. The MPC usually sets Bank Rate eight times a year, and its level remains fixed between each MPC announcement.īetween 20, the MPC also used asset purchases or QE to help meet the inflation target. ![]() We apply Bank Rate to reserves balances held with us by eligible financial firms. Those asset purchases can also then be unwound, which is sometimes called ‘quantitative tightening’ (QT). Second, it can use asset purchases, also known as ‘ quantitative easing’ (QE). First, it sets Bank Rate (and takes steps to ensure it is passed through to households and businesses). This includes, for example, the level of prices of goods and services, and the availability of credit. To maintain monetary stability, we need to influence monetary conditions. Our Monetary Policy Committee (MPC) decides what policy action we should take to reach that target. We set monetary policy to achieve the Government’s target of keeping inflation at 2%. Subject to that, we support the Government’s economic policy, including its objectives on growth and employment. Our monetary policy objective is to maintain price stability in the UK. This gives our balance sheet a central role in supporting monetary and financial stability. Central bank money, whether in the form of banknotes or central bank ‘reserves’ (deposits held with us by financial institutions), provides the ultimate means of settlement for all sterling payments in the economy. Our balance sheet is special for one key reason – the nature of our liabilities. Using our balance sheet to support our mission Part two of our guide gives more details of our individual operations, including who can apply to use them. It explains how we use the assets and liabilities on our balance sheet to achieve our mission. This is part one of our Market Operations Guide. Parliament gives us statutory responsibility for this work. Our mission is to promote the good of the people of the United Kingdom by maintaining monetary and financial stability. And, through our network of bilateral swap lines with other central banks, we can offer liquidity in certain non-sterling currencies. We also provide a deposit facility for UK banks which face formal restrictions on engaging in interest-bearing activity. We can also create sterling to undertake asset purchases of high quality liquid assets, which can later be unwound via maturities and sales of those assets. To support our objectives, we can provide longer term sterling liquidity, in the form of term funding. These include unsecured deposits and funding instruments, repo (repurchase) operations, and securities lending. Our sterling facilities start with Sterling Monetary Framework (SMF) operations in short-term sterling money markets. These activities all involve the creation or management of central bank money. To deliver the Bank’s statutory responsibilities for monetary and financial stability we use our balance sheet to provide a range of facilities and operations, available on public, market-wide terms to eligible financial firms. Our tools – How we use our balance sheet to achieve themĪ summary of the Bank’s market operations
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