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

owns.

     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."

     --NOTHING TAKEN OFF TABLE

     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

ammunition.

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

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