MNI POLICY: BOE Launches New GBP200bn QE; Cuts Bank Rate 15bps

-BOE Says GBP200bn QE Will Include Corporate Bonds; Amount Unspecified

By David Robinson

     LONDON (MNI) - The Bank of England cut its Bank Rate to 0.1% and agreed to

relaunch its asset purchase programme, committing to buy an additional GBP200

billion in government and corporate bonds

     The cut, coming at a second extraordinary meeting in just over a week, saw

the benchmark rate cut to what the Bank's Monetary Policy Committee judge is the

zero lower bound.

     The MPC's late March meeting, ending with an announcement on March 26, is

still going ahead. While the extra QE involves corporate bond purchases, the MPC

did not state precisely the target value of this bond buying.

     The following are key points from the MPC announcement:

     -The nine member MPC voted unanimously to increase the purchase of gilts

and non-financial investment grade corporate bonds by GBP200 billion to GBP645

billion and to cut Bank Rate to 0.1%.

     The re-launching of quantitative easing and the cut in Bank Rate had been

widely expected, although the timing was a surprise and the extra amount of QE

was strikingly large.

     -Some MPC members, including Gertjan Vlieghe, had previously openly

questioned how effective QE could be when gilt yield curves were near flat. The

MPC justified its action, however, in part by reference to the recent worsening

in gilt markets.

     "Conditions in the UK gilt market have deteriorated as investors have

sought shorter-dated instruments that are closer substitutes for highly liquid

central bank reserves. As a consequence, UK and global financial conditions have

tightened," the MPC said.

     -The lack of an explicit target for corporate bond purchases was the first

time the MPC has voted on QE without sanctioning a specific amount for its

purchases of an asset class. This indicates that the Bank is moving at pace, and

that details are being finalised later, with the BOE saying that it would issue

an operational notice later.

     "The majority of additional asset purchases will comprise UK government

bonds," it said.

     Gilt yields fell in the wake of the announcement, with ten years down

around 4 basis points following the news to 0.76%.

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

[TOPICS: M$B$$$,M$E$$$,M$$BE$]