The British central bank is planning to drastically reduce its holdings of government bonds, and papers worth ten billion pounds per quarter are to be actively sold. Even in the event of a recession and falling interest rates again, the deputy head of the central bank wants to stick to this plan.
The British central bank is determined to actively reduce its large holdings of government bonds - if necessary even in times of recession and possibly falling interest rates again. This was recently made clear by the deputy head of the central bank, Dave Ramsden.
The statements make people sit up and take notice, as the Bank of England (BoE) recently made the biggest hike in interest rates in 27 years and is likely to follow suit despite an impending recession. Ramsden said it was "more likely than not" that after the half-point rate hike to 1.75 percent, the price of money would have to go up further.
At the same time, he did not rule out that key interest rates would be lowered again next year in a recession, even if this was not his forecast. Even if it should come to that, the central bank will continue to gradually sell off its government bond holdings, emphasized the currency guardian, whose area of responsibility also includes the central bank's balance sheet, which weighs around one trillion pounds.
The monetary watchdogs in London want to start actively reducing their large holdings of government bonds soon - probably shortly after the next interest rate meeting, which is due in mid-September. It is said to be actively selling 10 billion pounds of paper per quarter. Treasury holdings on the BoE's balance sheet peaked in December when the central bank stashed £875 billion worth of paper.
Since expiring papers have not been replaced since February, it now only holds bonds with a volume of around £844 billion. According to Ramsden, the reduction in bond holdings should continue to take place practically in the background and largely independently of interest rate policy. The central bank communicated this clearly.
After the interest rate decision, she made it clear that the bar for stopping bond sales was set high, even in the event of turbulence on the markets. The BoE does not see the government bond sales primarily as a means of tightening its monetary policy, which is mainly controlled via the key interest rate. Rather, by selling off the paper, it wants to create sufficient scope for buying government bonds over time, should such an easing maneuver become necessary in the future as part of a lax monetary policy.
