Tools of The Central Banks

In 1976 the interest rate reached 15%, and a two-digit interest rate between 1975 and 1991 was not uncommon. Bank of England president Mark Carney and retiring vice chair Charlie Bien both said the interest rate will be around 3%. It is three to five years, which is 5% below the average before crisis. There are indications that interest rates may begin to rise in the next 12 months and in the last few minutes of the Bank of England meetings it seems that the current decision is more balanced in recent years.

The central bank has always been responsible for maintaining a stable economy including stable price, low inflation and confidence in the regional economy. The main means used by these central banks for these proposals are the monetary policy that affects interest rates and the behavior of each country. In this article, I will examine the Bank of England, explain how monetary policy is communicated, and explain how the financial crisis will affect policies. Since May 1997, the Bank of England has an independent right to set interest rates based on the target inflation rate. The UK 's desirable target inflation rate is 2% and the Bank of England set appropriate interest rates to ensure that the actual inflation rate will move towards the target inflation rate within the permissible period. However, the fixed target inflation rate does not necessarily imply a fixed interest rate.

Basically, the tools available to the central bank are asymmetric. In response to the rapidly growing economy and rising inflation, the central bank can ultimately use its key tools to control inflation and cool the economy to more sustainable interest rates. Despite the high inflation rate, banks can continue to raise interest rates as countermeasures. However, the central bank has solved another problem through the financial crisis. After the bankruptcy of subprime mortgage and Lehman, a significant reduction in shadow banking system resulted in a large gap in the amount of credit available for the financial system. Unless debt is collectively delinquent - this is unwilling to support the government or central bank - the only solution is that the government intervenes and bears additional debt. So far, the central bank has supported each government by purchasing government debt with a quantitative easing program.