The BoE aims for a large but “meager” balance sheet when QE takes place

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The Bank of England and the City of London financial district in London, Great Britain, November 5, 2020. REUTERS / John Sibley

LONDON, Sept. 13 (Reuters) – The Bank of England expects to have a sizeable but somewhat leaner balance sheet when it starts cutting its £ 895 billion asset purchase program, and takes action to make sure it doesn’t cause rates to rise in the short term.

Andrew Hauser, the BoE’s executive director for markets, also said financial markets should not expect the central bank to intervene as aggressively in the future as it did in March 2020 when the Fear of the COVID-10 pandemic has driven bond yields up.

Last month, the BoE announced that it plans to stop reinvesting the proceeds of maturing bonds from its quantitative easing program once it raises interest rates to 0.5% from their current level. 0.1%. Policymakers would consider outright sales once they raise the BoE’s main interest rate to 1%.

Gov. Andrew Bailey told lawmakers last week he did not expect the policy to drive bond yields up significantly and was aimed at ensuring that the BoE continues to have the opportunity to make asset purchases in future crises.

Hauser, in a speech to the International Finance and Banking Society, said he expected the size of the BoE’s balance sheet – which reflects QE purchases, banknotes in circulation and others. market operations – varies as the BoE smooths the business cycle.

Overall, the size of the BoE’s balance sheet would decrease but remain larger than before, he added.

“We plan to take a market-driven approach, in which we allow reserves to decline as QE assets pull out, but we are prepared to fill any demand gaps that may arise through shorter-term open market operations, ”he said in a speech on Monday.

“This should allow us to have a ‘lean’ balance sheet – giving the markets a chance to function – without being under excessive upward pressure on short-term rates.”

Hauser also said that the scale of the BoE’s intervention in March 2020 – when it restarted bond buying to combat market dysfunction as well as the broader economic weakness caused by the pandemic – did was not intended to set a precedent.

Market players should therefore strengthen their self-insurance and expect increased regulatory oversight, in exchange for access to the central bank,” he said.

Reporting by David Milliken, editing by Andy Bruce

Our Standards: The Thomson Reuters Trust Principles.


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