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MPC's Saunders speaks on monpol options if more stimulus is needed

BOE
  • Some very interesting points from the Saunders speech. Note that he does not say that more easing is needed now but that "If further easing is needed, a combined strategy – with easing through a range of policy tools (eg cut in Bank Rate alongside guidance and asset purchases) – may well be the most effective approach."
  • "There may be some scope to cut Bank Rate further, but our approach should take account of ELB uncertainty. As discussed above, I suspect the ELB is probably somewhat below zero, but there is uncertainty around this. With this uncertainty, it may be preferable to make any further rate cuts in relatively small steps, less than the normal 25bp increments"
  • He also discusses cuts to the TFSME in the context of similarities to the TLTROs:"An equivalent structure for the UK might, for example, set the interest rate for the TFSME additional allowance (linked to each bank's net rise in lending) below Bank Rate. Potential synergies from such a scheme could be helpful if Bank Rate falls further, by supporting bank profitability and increasing incentives for lenders to maintain credit supply, especially to SMEs. Such a scheme would, however, have fiscal implications and is not currently in the BoE's toolkit. For example, if the TFS (or TFSME) interest rate is below Bank Rate, then banks could borrow funds at the (lower) TFS rate and earn the (higher) interest rate on reserves. This subsidy for banks would come at the BoE's expense."
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