2023-07-19 18:07:41
The Bank of England is expected to step up the pace at which it sheds its 800 billion pound ($1 trillion) stockpile of government bonds purchased as part of its quantitative easing operations, the Bank said on Wednesday. Vice Governor Dave Ramsden.
Last September, the BoE said it would reduce its stocks of government bonds by £80bn over the next 12 months, split roughly evenly between direct sales and non-reinvestment of the proceeds. maturing bonds.
Mr Ramsden said financial markets had absorbed these bonds well, on top of the BoE’s sale of nearly £20bn of corporate bonds, and there were few signs of an impact important on gilt prices.
“Personally, these factors argue for a thoughtful increase in the pace of gilt stock drawdown over the next 12 months,” he said in a speech to Britain’s Money Macro and Finance Society, organized at the BoE.
The BoE is expected to present a new selling program when announcing its interest rates on September 21st.
Selling gilts slightly tightens financial conditions in times of high inflation and creates more room for BoE stimulus in the event of an economic downturn or financial crisis.
Mr Ramsden said more gilts in the BoE’s portfolio will mature in the 12 months from September 2023 than in the previous 12 months, meaning quantitative tightening (QT) might accelerate without increasing direct sales.
“Like the monetary policy committee, I want quantitative tightening to set a gradual and predictable pace for the unwind and let it operate in the background,” he said.
In May, Mr Ramsden said the BoE was more likely to increase than decrease the pace at which it unwinds the £875billion of government bonds it bought in deals. quantitative easing between 2009 and 2021.
Mr Ramsden said it was unclear to what extent the BoE would ultimately reduce its gilt holdings. Banks polled last year on developments in the BoE’s balance sheet expressed opinions ranging from 325 billion to 480 billion pounds, he added.
“That’s a long way from our current situation and it implies that QT, at this rate, may continue for some time to come,” he said.
INFLATION REMAINS TOO HIGH
Mr Ramsden voted with a majority of the members of the BoE’s monetary policy committee to raise the central bank’s main interest rate by half a percentage point to 5% last month, to combat the highest inflation among major advanced economies.
Earlier in the day on Wednesday, official data showed UK consumer price inflation fell to 7.9% in June, its lowest level in 15 months, a bigger drop than expected by financial markets and bringing inflation back into line with the BoE’s most recent forecasts.
Financial markets now expect BoE rates to peak at 5.75% or 6%, down from 6.5% two weeks ago.
Ramsden said the strength of Wednesday’s market move showed investors’ sensitivity to upcoming data, but he would not say more regarding the outlook ahead of the central bank’s next rate decision, the August 3.
“CPI inflation has started to come down significantly but remains far too high. The monetary policy committee has consistently stressed that monetary policy decisions will address the risk of more persistent strength in wage setting and domestic prices,” Ramsden said.
The latest dip was driven more by a fall in energy prices than the BoE had expected, while other elements of inflation that tend to be more rigid remain elevated, Ramsden added. .
($1 = 0.7752 pounds)
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