Other Policy Instruments

Short-term interest rates and foreign exchange market intervention are the principal instruments of UK monetary policy. Other techniques have been used in the past. In the early 1980s, for example, the Bank sold more government debt than was necessary to fund the government's borrowing requirement, in order to reduce the growth of the broad money supply. This policy of overfunding was abandoned in 1985. Other techniques, now abandoned, have included the imposition of quantitative ceilings on banks' lending (abolished in 1971), requirements on banks to place special deposits with the Bank of England according to how fast their deposits were growing (ended in 1980), and guidance on bank lending, aimed at discouraging loans to consumers. In practice, only market-based instruments have been found to be effective, and as markets have become increasingly open - particularly since the abolition of exchange controls in 1979 - direct methods of monetary management are increasingly unlikely to work.

I. Key terms

Public scrutiny	- державна перевірка
Short-term interest rates	- короткострокові відсоткові ставки
Exchange Equalization Account	- фонд стабілізації валюти
Government's borrowing requirement	- урядові вимоги до позичок

II. Answer the following questions in your own words:

1. What is the first objective of any central bank?

2. Does the Bank act independently of government?

3. How often are meetings between the Governor and the Chancellor held?

4. What is the role of the Bank in the domestic money markets?

5. What organization does the Bank use as an intermediary rather than deal directly whith every individual Bank?

6. What do intrest rates affect?

7. How can the Bank try to influence the exchange rate?

8. What are the principal instruments of UK monitory policy?

III. Fill in the blanks in this passage, using words from the list given below:

facility, arrangements, supervisory regime, auction bidding, capital, counterparties, forecasts, gilt repo, were allowed.

First the Bank decided to use ________ in its daily operations as an instrument to provide liquidity to the market. Hitherto, gilt repo had been used only as the basis for a twice-monthly ________.

Second, the Bank chose to broaden the range of _______ with which it is prepared to deal beyond the small group of discount houses to include those banks, building societies and securities houses active in either the bill or gilt repo markets, so long as they met a number of functional criteria. Transitional _________ were made available for discount houses that chose to continue as counterparties. Third, technical changes to the Bank's end-of-day operations were introduced to allow the use of later and more accurate ________ of the market's liquidity position. Finally, the Bank ended the requirement that its money market counterparties should be separately capitalised, specialised intermediaries subject to a special ______ _____. At the same time, the requirement of separate capitalisation was dropped for the gilt-edged market makers (GEMMs), the Bank's counterparties in the gilt market, opening the way for group restructuring and a more effective use of ______ during 1997.

Several changes were effected in the gilt market to build on the more structured auction programme introduced in 1995 and the open gilt repo market inaugurated in January 1996. The GEMMs ______ ______ to make more bids at auctions in the last moments before bidding closed, and to bid non-competitively for up to 0.5% each of the stock on offer. Both facilities were widely used, and contributed to an increase in ______ _______. In July 1996, the Bank opened its "Shop Window" for sales to GEMMs of residual official holdings of stocks.

IV. Summarize the following text in English in about 50 words:

Проведення монетарної політики, тобто визначення, головним чином, рівня процентних ставок, що забезпечують досягнення інфляційної мети, покладене на Банк Англії і Казначейство (Банк Англії на відміну від інших банків не може діяти незалежно від уряду). Прийнятий в 1946 році Акт Банку Англії дає Казначейству право випускати вказівки Банку Англії і хоч Казначейство ніколи це право не використало, відносини між ними такі, що фінальне рішення зприводу процентних ставок приймає Міністр Фінансів. Проте, Банк Англії грає дуже важливу роль в прийнятті рішення. Тепер Банк Англії публікує квартальний Звіт по інфляції (Inflation Report), який містить докладний аналіз інформації, а також протокол зустрічі Міністра і Керівника публікується через 6 тижнів після їх зустрічі з приводу процентних ставок.

При підготовці Звіту по інфляції і процентним ставкам Банк Англії бере до уваги внутрішні і зовнішні економічні і монетарні чинники, які будуть стосуватися інфляції майбутніх двох років. Порада Банку по процентних ставках містить інформацію про зміни, що впливають на промисловість і торгівлю в різних регіонах Англії, що надається агентами Банк Англії.

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