BoE’s Bailey Justifies Gilt Holdings Reduction and Future Policy Tools
Bank of England's Approach to Gilt Holdings and Policy Decisions
Bailey Defends Reduction of Government Bond Holdings
June 15 (Reuters) - Bank of England Governor Andrew Bailey on Sunday defended the central bank's decision to reduce its holdings of British government bonds, saying the move would restore its capacity to intervene in the future if needed.
Background: Quantitative Easing and Its Reversal
Role of Quantitative Easing During Crises
Writing in The Times, Bailey said the BoE's past purchases of government debt, known as quantitative easing (QE), had been crucial in supporting the economy during the global financial crisis and the COVID-19 pandemic. With those crises past, he said it was appropriate to reverse the policy.
"Many of those who now criticise QE were not saying as much at the time," he wrote.
Transition to Quantitative Tightening
The central bank is now reducing its stock of gilts through quantitative tightening (QT). Bailey said that the overall cost of the bank's QE and QT operations is broadly neutral.
Criticism and Debate Over BoE Policy
Disagreements with Reform UK Leader
Reform UK leader Nigel Farage and Bailey have previously had disagreements centering around the BoE's handling of bond sales and a lack of businesspeople on its rate-setting Monetary Policy Committee.
Addressing Concerns Over Bond Sale Losses
Financial Impact of Selling vs. Holding Gilts
In the newspaper article, Bailey pushed back against criticism that selling bonds locks in losses, arguing that whether gilts are sold or held to maturity does not change the overall financial impact.
Importance of Policy Tools for Stability
"Monetary policy and financial stability are important for the people of the UK and it is important that we have the tools to do it right," he wrote.
(Reporting by Ruchika Khanna in Bengaluru; Editing by Thomas Derpinghaus)
