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Bank of England: Monetary Policy Committee

Volume 708: debated on Thursday 5 March 2009

Statement

My right honourable friend the Chancellor of the Exchequer (Alistair Darling) has today made the following Written Ministerial Statement.

In my Statement to the House of Commons on bank lending of 19 January, I announced the setting-up of the asset purchase facility. I noted that this facility could be used by the Monetary Policy Committee as an additional way for meeting the inflation target, and that I would inform Parliament if the facility were to be used for monetary policy purposes.

Following the meeting of the Monetary Policy Committee on 4 and 5 February 2009, the Governor of the Bank of England wrote to me on 17 February, requesting that the Monetary Policy Committee be authorised to use the facility to purchase eligible assets financed by central bank money. The Governor's letter set out that the Monetary Policy Committee had concluded that it might be necessary to use asset purchases at future meetings in order to meet the 2 per cent target for CPI inflation.

I replied to the Governor on 3 March, authorising the Monetary Policy Committee to use the asset purchase facility for monetary policy purposes. I also extended the range of assets eligible for purchase by the Bank of England Asset Purchase Facility Fund to include UK Government debt purchased on the secondary market as well as the full range of private sector assets previously specified in my letter to the Governor of 29 January 2009. And I also authorised an increase in the scale of purchases under the facility to up to £150 billion, but that, in line with current arrangements and in recognition of the importance of supporting the flow of corporate credit, up to £50 billion of that should be used to purchase private sector assets. These are maximum limits within which the Monetary Policy Committee will determine the scale of its purchases each month; the proportion of Government and private sector assets purchased will be kept under review.

These changes do not affect the objectives of the Government's monetary policy framework. The remit of the Monetary Policy Committee continues to be to maintain price stability and, subject to that, to support the Government's economic policy, including its objectives for growth and employment. The symmetrical inflation target is 2 per cent on the CPI measure, as specified in my letter to the Governor of the Bank of England of 11 March 2008.

The Government's debt management objective remains to minimise, over the long term, the costs of meeting the Government's financing needs, taking into account risk, whilst ensuring that debt management policy is consistent with the aims of monetary policy.

A copy of my letter to the Governor has been deposited in the Libraries of both Houses.