By Andy Bruce and William Schomberg
LONDON (Reuters) – The Bank of England (BoE) will continue with plans to gradually sell off its vast stash of British government bonds, even if an economic slowdown eventually forces the bank to cut interest rates, the bank said. bank vice president Dave Ramsden.
The BoE is poised to become the first major central bank to sell some of the bonds it bought during more than a decade of quantitative easing (QE), with a £40 billion (£49 billion) sales program. dollars) which should start next month.
Ramsden, in charge of the bank’s roughly £1 trillion portfolio, told Reuters it was “more likely” borrowing costs would need to rise again after the Bank of England raised interest rates last week by 0.5 percentage point, to 1.75%.
But in an interview, he also acknowledged financial market expectations that the bank’s recession forecast could force it to reverse course on rates next year, a scenario which Ramsden said was not his projection but that he ” certainly don’t rule it out.”
Even in that situation, the process of selling gilts can continue, he said.
“I think that’s consistent with the way we communicate things, that we’re going to continue the pace of selling titles in the background,” Ramsden said.
Last week, the BoE said it will have a “high rule” to stop its policy of selling bonds, or quantitative tightening (QT), in the event of economic or financial market turmoil.
The British central bank does not expect gilt sales to play a big role in tightening monetary conditions – unlike interest rate movements or initial bond purchases – but it wants to ensure it can make asset purchases again in the future if required.
Economists at HSBC said last week that sales are unlikely to have much of an impact on gilt yields “if well communicated”, but also warned that there is a risk of volatility due to a lack of short-term gilts in the UK repo market.
Ramsden said the bank was aware of this through its market contacts. While it has tried to be as clear as possible about its QT plans, the BoE will be watching how the market responds to its sales, he said.
“There might be an effect when we actually get to sell and you might see prices move a little bit. But when we’re doing that, remember we’re talking £10bn a quarter… That’s consistent with being gradual and predictable,” Ramsden said.
(Reporting by Andy Bruce)
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