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MNI REVIEW: Market Moves Push BOE To Swift QE

-Bailey Stresses BOE Stands Ready To Do More QE When Needed
-Acted To Counter Rise In Gilt Yields, Flow Into Cash and Dollars
By David Robinson
     LONDON (MNI) - The spike in gilt yields and the plunge in sterling, fuelled
by rumours of a lockdown of London, drove the Bank of England Monetary Policy
Committee to swiftly sanction GBP200 billion of quantitative easing.
     Some Bank of England Monetary Policy Committee members had previously
expressed scepticism about how effective quantitative easing would be when gilt
yield curves were near flat, but the spike in yields in recent trading and the
sterling sell-off tilted the scales in favour.
     BOE Governor Andrew Bailey told a press conference that markets had become
"borderline disorderly," noting the extreme volatility in 30 year gilt yields
and the move out of sterling into cash and, in particular, the U.S. dollar.
     Following its policy intervention, including a 15-basis-point rate cut
taking Bank Rate to what the MPC members have said is its effective zero lower
bound, Bailey said both gilts and sterling "did move in the way we thought they
would," with yields falling back and the currency firming.
     Bailey was adamant that the MPC had more room for manoeuvre. Its next
scheduled meeting will end with an announcement on March 26. Bailey said "We are
not done."
     The MPC will buy gilts as it sees fit and the inevitable increase in
issuance will ease concerns about the share of the market that the central bank
     The Bank is also likely to be involved in further joint schemes with the
Treasury to push funding to specific sectors.
     Asked by MNI about supporting supply chain financing, Bailey said he was
happy to explore the option of asset-based finance adding "we have teams at the
Treasury looking at that."
     Bailey held the line against taking Bank Rate negative and directly
purchasing gilts, saying "I am not in favour of negative interest rates."
     Bailey, however, in his own version of former European Central Bank head
Mario Draghi's "whatever it takes" mantra, stressed that "it would be foolish to
take anything off the table,"
     "This world has moved on at a frightening pace," he said, with the spread
of coronavirus and the subsequent market turmoil.
     The BOE looks set to continue to develop more joint schemes with the
Treasury, including amplifying its commercial paper buying, while standing ready
to conduct quantitative easing whenever it is required.
     While Bailey and his colleagues remain deeply radical of more radical
steps, such as helicopter money and monetary financing, his remarks showed that
he is all too aware of the need to let markets know they are not running out of
--MNI London Bureau; tel: +44 203-586-2223; email:
[TOPICS: M$B$$$,M$E$$$,MT$$$$,MX$$$$,M$$BE$]

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