Over the last month, central banks have continued to withdraw some of the unconventional liquidity provisions offered to the money markets. The US Federal Reserve raised its discount rate from 0.50% to 0.75% on 18th February, while the European Central Bank (ECB) withdrew the provision of six month loans, and raised the rate at which three month loans will now be offered. And in the UK, the Monetary Policy Committee (MPC) decided to leave the total stock of assets purchased under quantitative easing (QE) unchanged again in March. However, these moves do not suggest that a tightening of monetary policy is now on the table. In the cases of the ECB and the Fed, their moves to rein in emergency liquidity provisions were merely steps to normalise the central bank’s role in money markets. Meanwhile, members of the MPC continued to hint that more QE might be needed. On top, dovish comments by policymakers on the outlook for inflation and growth in all these economies suggested that official rates will be held at their current low levels for a very long time.
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