“The withdrawal of quantitative easing must not have a significant impact on the shape of the yield curve or on the economy if properly communicated and implemented gradually,” said Gertjan Vlieghe of the Policy Committee. monetary.
If the Bank of England started selling its £ 435 billion of government bonds, which it had acquired as part of its quantitative easing program, there could be little reaction from the government. British economy, predicted a member of its monetary policy committee.
The general assumption of policymakers and financiers was that the reduction of monetary incentives would have a similar impact on the economy as asset purchases, but vice versa; H. A decline in total activity and a shift in the UK yield curve.
The Bank of England has already argued that the quantitative easing program is helping the economy through a rebalancing circuit by encouraging asset managers to buy riskier assets than government bonds, which lowered the cost of capital for private companies and encouraged investment.
But Gertjan Vlieghe, an external member of the MPC, opposed this popular opinion Tuesday in a speech at the Imperial College Business School in London.
“My view that QE operates primarily above expectations, with additional, temporary and mostly relevant liquidity effects in times of market stress, means that the QE process does not have to have a significant impact. on the shape of the yield curve or the economy, if properly communicated and carried out step by step, “he said.
In June, the bank said it would not consider reducing its holdings of government bonds until the prime rate was 1.5 percent, double the current rate of 0.75 percent.
Currently, financial markets calculate it only after 2021.
In this case, Mr. Vlieghe said: “Expectations regarding future interest rates may again be influenced by the change in current key interest rates and continued disclosure, as before the QE period. ”
“If private households, businesses and financial markets understand this, the reduction of quantitative easing should not have a further impact on expectations and therefore on the economy.”
The UK yield curve has flattened in recent months, meaning that the short-term interest rate has risen, but the long-term debt interest rate has not increased accordingly.
Some have suggested that QE is responsible for artificially maintaining low long-term interest rates. But Mr Vlieghe said the declaration was more of a return to a long-term historical norm.
“Since the independence of the Bank of England [in 1997], the fundamental principles of inflation and inflation risk have become more similar to those of the gold standard of the twentieth century and are particularly different from those 1970s and 1980s, the average is again, “he said.
Of course, but it does so mainly by influencing expectations of future monetary policy and the reaction of the central bank, which determines inflation expectations, even if interest rates are limited by the effective lower bound . which in turn affects a wide range of asset prices, economic growth and inflation. ”
The Bank of England launched its quantitative easing program in 2009 during the financial crisis. Unable to lower interest rates further, it relied on government bonds to support the economy as a whole.
Over the last nine years he has bought £ 435 billion worth of ‘British’ bonds.
In the United States, the Federal Reserve raised more than $ 4.5 trillion as part of its own stimulus package. In October 2017, stocks began to decline with no apparent impact on the UK economy.
Asked about the risk of compromise on Brexit, Mr Vlieghe replied: “We do not wish to comment on anything less likely or more likely.”