Facade of the Bank of England in the City of London.
Getty ImagesThe Bank of England is expected to give this week the first indication that it will soon be ready to tighten its monetary policy, as prospects for the U.K. economy prove brighter than was expected earlier this year, with inflation raising to the level beyond which the bank would have to act to keep it around its official 2% target.
The case for a hawkish turn is strong. The case for acting with prudence is even stronger. The question is the type of policy mix the U.K. central bank will choose to signal, using its current main tools, interest rates and asset-buying (the so-called quantitative easing).
The case for starting to talk about tightening is strong because since the Bank’s last meeting, the road map designed by the government to ease the economy out of a two months’ lockdown has been followed without major problems, as the Covid-19 vaccination campaign has continued unabated.
Read:Europe Entered Recession in the First Quarter. Here’s Why This Won’t Last.
Meanwhile, the fiscal stimulus remains strong, and the government keeps supporting households and businesses through the extension of last year’s measures, or the implementation of new ones. The Bank’s own economic forecast should this week follow other organizations or analysts who have revised their growth predictions upward, and unemployment down.
Analysts don’t expect the central bank to change its key rate, currently at 0.1%, this year or next, and markets are bracing for two hikes starting in 2023 only. But the Bank has to make a decision on its bond-buying program, which may run its course before its scheduled end in December if it is kept at the current weekly pace.
Bank of America analysts estimate it would have to cut the amount from £4.4 billion to £3.2 billion a week if it wants to keep purchasing until the end of the year, within the current £875 billion ceiling. Keeping the program at its current pace would mean de facto terminating it early.
The recent tightening of gilts, relative to U.S. Treasuries, shows that markets are pricing in lower support from the BoE in the coming months, ING analysts note, adding that this market will soon have to be “flying on its own.”
The Bank might also wait to decide until its June meeting before giving more precise indications on its future policy, notably on the conditions it would need before unwinding its QE portfolio, for now kept intact by reinvesting into the bonds when they mature. If the central bank wants to replenish its resources to be able to face future crises, it will need at some point to shrink the size of its balance sheet.
May 05, 2021 at 09:04PM
https://www.barrons.com/articles/bank-of-england-expected-to-send-tapering-signal-51620216811
Bank of England Expected to Send Tapering Signal - Barron's
https://news.google.com/search?q=Send&hl=en-US&gl=US&ceid=US:en
No comments:
Post a Comment