Monetary policy: Difference between revisions
imported>Doug Williamson (Expand.) |
imported>Doug Williamson (Expand. Source: Bank of England webpage http://www.bankofengland.co.uk/monetarypolicy/Pages/framework/framework.aspx) |
||
| Line 10: | Line 10: | ||
'Stable prices' are defined by the UK government's inflation target, currently 2% per annum as measured by the UK Retail Prices Index (RPI). | 'Stable prices' are defined by the UK government's inflation target, currently 2% per annum as measured by the UK Retail Prices Index (RPI). | ||
The objective is to keep inflation close to the target, neither too high nor too low. If inflation moves away from the target by more than 1% in either direction, additional corrective measure will be taken. | |||
Responsibility for setting monetary policy | |||
Subject to the primacy of the inflation target, the secondary objectives of monetary policy in the UK are to support the government's other economic objectives, including those for growth and employment. | |||
Responsibility for setting UK monetary policy - to achieve monetary stability - lies with the Bank of England's Monetary Policy Committee (MPC). | |||
Monetary policy in the UK has usually operated through setting the Bank of England's interest rate, the Official Bank Rate, or 'Bank Rate'. | Monetary policy in the UK has usually operated through setting the Bank of England's interest rate, the Official Bank Rate, or 'Bank Rate'. | ||
The Official Bank Rate is sometimes referred to as the 'Bank of England Base Rate'. | |||
====Quantitative easing in the UK ==== | ====Quantitative easing in the UK ==== | ||
In 2009, in addition to setting Bank Rate, the MPC started quantitative easing (QE). | In 2009, in addition to setting Official Bank Rate, the MPC started quantitative easing (QE). | ||
This means injecting money directly into the economy by purchasing financial assets. | This means injecting money directly into the economy by purchasing financial assets. | ||
| Line 30: | Line 35: | ||
== See also == | == See also == | ||
* [[Bank of England]] | * [[Bank of England]] | ||
* [[Deflation]] | |||
* [[Discount rate]] | * [[Discount rate]] | ||
* [[Financial Policy Committee]] | * [[Financial Policy Committee]] | ||
* [[Fiscal policy]] | * [[Fiscal policy]] | ||
* [[Inflation]] | |||
* [[Interest rate]] | * [[Interest rate]] | ||
* [[Keynesianism]] | * [[Keynesianism]] | ||
Revision as of 12:51, 7 August 2016
Monetary policy is central government or other policy to stimulate or otherwise influence economic activity by influencing money supply or interest rates.
Historically, mechanisms for influencing the money supply have included the use of open market operations, quantitative easing, the central bank discount rate and reserve requirements.
UK monetary policy
In recent years the primary objectives of UK monetary policy have been 'stable prices' and confidence in the currency, collectively known as 'monetary stability'.
'Stable prices' are defined by the UK government's inflation target, currently 2% per annum as measured by the UK Retail Prices Index (RPI).
The objective is to keep inflation close to the target, neither too high nor too low. If inflation moves away from the target by more than 1% in either direction, additional corrective measure will be taken.
Subject to the primacy of the inflation target, the secondary objectives of monetary policy in the UK are to support the government's other economic objectives, including those for growth and employment.
Responsibility for setting UK monetary policy - to achieve monetary stability - lies with the Bank of England's Monetary Policy Committee (MPC).
Monetary policy in the UK has usually operated through setting the Bank of England's interest rate, the Official Bank Rate, or 'Bank Rate'.
The Official Bank Rate is sometimes referred to as the 'Bank of England Base Rate'.
Quantitative easing in the UK
In 2009, in addition to setting Official Bank Rate, the MPC started quantitative easing (QE).
This means injecting money directly into the economy by purchasing financial assets.
QE is designed to stimulate the economy further, beyond what could be achieved by low interest rates alone.
