I was, conditionally, sympathetic to the Funding for Lending programme the Reserve Bank put in place late last year. At the time they thought (and it seemed plausible they were right) that more monetary stimulus was needed, and – through their own neglect and incompetence over several years – they asserted that a negative OCR could not yet be implemented. The announcement of the scheme clearly narrowed the gap between wholesale and retail interest rates, lowering the latter. This chart from this week’s MPS is one way of illustrating the point.
The effect was achieved by making it known the scheme was coming, and then available. Relatively little was actually borrowed, especially early in the piece.
The scheme works by offering funding to banks (only) at an interest rate equal to the OCR (floating rate, so the rate changes as the OCR does) for terms of three years. The loans…
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Utopia, you are standing in it! 
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