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Free AccessMNI POLICY: Bailey Says BOE Smoothing Government Debt Profile
-Bailey Says Hard To See How Debt Can Be Inflated Away: CPI Heads To Zero
-No Tight Monetary Financing Definition; Not Contemplating Negative Rates
By David Robinson
LONDON (MNI) - Bank of England Governor Andrew Bailey downplayed the debate
over whether the BOE was engaged in monetary financing, but acknowledged that it
was helping smooth government borrowing.
In a broadcast interview at a Financial Times event, Bailey was dismissive
of the idea that debt could be inflated away, with the Bank continuing to pay
interest on reserves rather than providing free funding and with the outlook for
low inflation.
Following are key points from Bailey's question and answer session:
-Asked if the Bank was carrying out monetary financing Bailey said "There
isn't really a subtle definition of monetary financing."
Monetary financing under classical definitions, including inflating away
debt, "was not going on at all."
"This whole idea of inflating away (debt) is hard to imagine in a world
where we are paying interest on reserves, as we are," he said, although he added
"Does it make sense for us to do this in terms of what I call smoothing the
profile of overall government borrowing and the impact that might have on
financial markets? Yes."
-At its current pace the BOE will complete its GBP200 billion of asset
purchases next month and there is a widespread expectation it will raise its QE
ceiling at next month's meeting.
When the Bank launched the programme in March "We were very clear we were
operating at pace, and we are buying gilts, give or take, at GBP50 to 60 billion
of assets a month, which is the fastest the Bank has done," he said.
-Bailey said it was clear that the surge in gilt issuance "was going to
strain the capacity of the markets in the short-term and we knew that we had to
play a role both in terms of stabilising the markets .. and enabling the shock
through the issuance of government debt to be absorbed."
-He denied the Bank was taking a risk with inflation, saying that its
latest economic scenario "had inflation dropping to zero .. and it then just
about comes back to target by the end of the horizon."
-Asked if the Bank could sanction negative interest rates, Bailey said it
would be foolish to rule anything out, but it was not something they were
contemplating at present. He said that setting negative rates was not something
that could be done at short notice.
"My own view is that it would require, if we were to consider it, quite an
extensive communications exercise because I don't think it is just a linear move
in interest rates .. I think from a communications point of view .. it is a very
big step," he said.
--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com
[TOPICS: M$B$$$,M$E$$$,M$$BE$]
To read the full story
Sign up now for free trial access to this content.
Please enter your details below.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.