abrdn: Actie BoE is niet wat markten voor ogen hadden

abrdn: Actie BoE is niet wat markten voor ogen hadden

Monetary policy UK
Engelse pond.jpg

Robert Gilhooly, Econoom bij abrdn, geeft commentaar op de actie van Bank of England.

Yesterday the Bank of England’s Chief Economist Huw Pill remarked that the UK government’s fiscal package and subsequent market reaction would require a ‘significant’ monetary policy response. This morning’s action by the BoE announcing that it would step in to buy long-dated government bonds and pause the start of QT was not the response markets had in mind.

At the time of writing, this caused a record rally at the long-end of the curve (30yr yields fell more than 75bp initially) while the short-end quickly retraced, consistent with a ‘twist’ operation which retains an expectation of policy tightening necessary to offset the government’s fiscal expansion.

Bringing back bond purchases in the name of market functioning is potentially justified; however, this policy action also raises the spectre of monetary financing which may add to market sensitivity and force a change of approach.

The Bank of England remains in a very tough spot. The motivation for ‘twisting’ the yield curve may have some merit, but this reinforces the importance of near-term tightening to guard against accusations of fiscal dominance.