SMPC votes to hold interest rates - February 2009

SMPC votes to hold interest rates but supports measures to stop collapse of money stock

Following its latest meeting the IEA Shadow Monetary Policy Committee (SMPC) voted to leave Bank Rate unaltered at 1.5% on Thursday 5th February. In particular, six members of the Institute of Economic Affairs’ shadow committee voted to hold Bank Rate in February, while three members advocated another reduction of 0.5%. There was a widespread view on the SMPC that further reductions in Bank Rate would only have a limited further stimulatory effect on activity. Instead, a majority of the shadow committee’s members thought that direct action should be taken to ensure that a collapse in the broad money stock did not lead to a depression.

However, the SMPC also stressed that any unconventional measures to directly increase monetary growth needed to be rapidly unwound, once they had done their work, to avoid a longer-term inflation problem. There was concern that political considerations, and co-ordination problems between the Bank, HM Treasury, and the Debt Management Office, might make it difficult to achieve this unwinding in practice, however.

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