Chillin' out till it needs to be funded
zyakaira notes: As markets get into their regular humdrum, such notes from Central Bankers continue to underline the cautious tone markets have acquired in 2009 and signify that the downturn will spring surprises into 2010 and more.
The Bank of England surprised markets on Thursday by agreeing to create an extra 50 billion pounds of new money even though it expected the recession to soon bottom out.
The BoE announced it would ramp up its so-called quantitative easing (QE) scheme — whereby it buys bonds from commercial institutions — from 125 billion pounds to 175 billion pounds after winning government approval.
In reaction, London stocks surged to a 2009 peak, with the FTSE 100 index of leading shares striking 4,711.51 points — the best level since October 6, 2008 — after the BoE also held interest rates at a record low 0.50 percent.
The no-change decision was in line with market expectations, but there had been considerable uncertainty about the outlook for the QE plan, which is effectively seen as creating new money.
“Financial market strains have eased and banks’ funding conditions have improved a little, although financial conditions remain fragile,” the BoE said in a statement announcing its move.
“Household and business confidence has picked up, albeit from the very low levels experienced in the wake of the financial crisis last autumn.”
The BoE had launched QE in March, when it also slashed borrowing costs to the current record-low 0.50 percent, in a bid to beat the credit crunch, boost lending and lift the economy out of a downturn.
In Frankfurt on Thursday,%