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Wednesday, March 11, 2009

UK Begins Quantitative Easing

by Calculated Risk on 3/11/2009 09:13:00 AM

From The Times: Bank to begin 'printing money' to boost economy

The Bank of England will start pumping newly created money into the economy today by buying £2 billion in gilts as it embarks on "quantitative easing" in an effort to boost the economy.
Mervyn King, the Governor of the Bank, indicated last week that the Bank would continue this course of action until the lending markets became unglued.

... the Bank's announcement has already had some effects.

Benchmark ten-year bond yields fell to a record low of 2.95 per cent at the beginning of the week and sterling swap rates, used by banks and building societies to calculate fixed-term mortgage rates, have also dropped, indicating that lenders should be able to offer more competitive home loan rates.

Corporate borrowing costs have also fallen by between 0.44 and 0.72 percentage points, according to the sterling iBoxx index.
The Fed will probably watch this closely as they discuss buying long-term treasuries at the Fed meeting next week.