REPEAT: MNI: BOE Vlieghe: QE Unwind Need Not Impact Economy

Repeats Story Initially Transmitted at 08:44 GMT Sep 25/04:44 EST Sep 25

--Vlieghe Says QE Works Mainly Through Expectations, Liquidity 

--BOE Vlieghe: Unwind Can Be Painless

By David Robinson

     LONDON (MNI) - Bank of England Monetary Policy Committee member Gertjan

Vlieghe said Tuesday that unwinding quantitative easing, running down the Bank's

gilt pile, could be achieved without impacting either the yield curve or the

real economy.

     In a speech at Imperial College Business School Vlieghe tackled the

widespread view that QE works by compressing term premia. Instead, he argued

that in the short term it served to boost market liquidity and that it does

impact rate expectations. This entails that when it is unwound term premia need

not balloon.

     Other points noted by Vlieghe were:

     -A range of long-term factors, including demographics and demand for safe

assets, had served to flatten yield curves and keep them flat and that this is

not due to QE. So unwinding QE need not result in a marked steepening of yield

curves.

     -QE impacts the yield curve "primarily by affecting expectations of future

monetary policy."

     -"Unwinding QE need not have a material impact on the shape of the yield

curve or indeed on the economy," he said.

     -Vlieghe took comfort from the experience of the Federal Reserve so far in

unwinding QE. The US has not seen any dramatic steepening of the yield curve or

sharp re-pricing of assets, he noted.

     -The speech did not address the question of when the next rate hike is

likely. Instead the speech served as an endorsement of the view that once the

Monetary Policy Committee does raise Bank Rate from its current level to a point

at which it can be materially cut, around 1.5%, it should be comfortable getting

on and unwinding QE without worrying that it will derail the economy.

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