Source · Select Committees · Treasury Committee
Fifth Report - Quantitative Tightening
Treasury Committee
HC 219
Published 7 February 2024
Recommendations
8
Acknowledged
Para 50
Prioritise developing a new backstop facility and transparent contingency for suspending Quantitative Tightening.
Recommendation
The Bank is right to work on a new backstop facility to reduce the chance of having to resort to gilt purchases in future, and given that QT is ongoing, it should work on this as a priority. In the …
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Government Response Summary
The government outlines the Bank's and FPC's ongoing work to enhance financial stability through private self-insurance, market infrastructure, and liquidity regulation, and mentions facilities to lend to non-bank institutions, emphasizing that financial stability tools can be used without constraining monetary policy decisions for QT.
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Conclusions (5)
3
Conclusion
Acknowledged
Para 22
One area in which the Bank’s strategy is less well established regards the long-term steady-state size and composition of its balance sheet, which may have a bearing on the longer-term conduct of QT and which, as we note later, may have implications for fiscal as well as monetary and financial …
Government Response Summary
The government acknowledges the issues regarding the long-term size and composition of the Bank's balance sheet. They refer to previous communications outlining potential compositions and state that the Treasury is engaging with the Bank on these issues, noting that international central banks are also reviewing their balance sheets and any changes will be communicated when appropriate.
10
Conclusion
Acknowledged
Para 64
Notwithstanding the need to ensure that the programmes are compatible with the operational independence of monetary policy, it strikes us as highly anomalous that decisions have been and are being taken about QE and QT concerning huge sums of public money without any regard to the usual value-for-money requirements. This …
Government Response Summary
The Bank recognises the committee's concerns regarding value for money and clarity, stating its operations are designed to maximise value for money by minimising cost and risk over the lifetime of the APF, subject to policy objectives.
14
Conclusion
Acknowledged
Para 75
It is right to say that the overall effectiveness and value-for-money of QE and QT should be judged by their wider macroeconomic impacts on inflation, growth, and employment, rather than on the direct fiscal costs alone. There is agreement among many that certain rounds of QE, especially the initial rounds, …
Government Response Summary
The Bank acknowledges the committee's observation on judging QE/QT effectiveness by wider macroeconomic impacts, but emphasizes that ongoing evaluation of monetary policy decisions for value for money would hinder MPC independence, while confirming the framework design remains under review.
19
Conclusion
Acknowledged
Some witnesses thought that the remuneration of reserves would need to be reconsidered once reserves had reached their future steady-state level. However, there is a lack of information about future arrangements for the Bank’s balance sheet once the steady-state level of reserves is reached. (Paragraph 82) Quantitative Tightening 37
Government Response Summary
The government clarifies the Bank's arrangements for normalising its balance sheet, detailing the role of liquidity facilities as reserves fall. It states that the Bank is continuing to analyse the optimal steady-state level of reserves for monetary and financial stability.
21
Conclusion
Acknowledged
Para 91
QE and QT losses, the fiscal rules, the regular remittances of profits arising from QE from the Bank to the Treasury and indemnity payments to cover losses from the Treasury to the Bank interact to create direct and immediate links between monetary policy decisions and fiscal policy. The current losses …
Government Response Summary
The government acknowledges that monetary policy decisions have fiscal implications but stresses the importance of the Bank of England's operational independence. It explains that the current arrangements, including the MoU and transparent APF cashflows, are designed to manage these interactions, and that broader economic impacts of QE/QT are also considered.