Bank of England governor Andrew Bailey believes the Bank of England must begin reversing quantitative easing before hiking interest rates from record lows.
Bailey said today that a reveral of QE should come before lifting rates from their historic lows of 0.1 per cent, signalling an upending of long-standing Bank of England policy.
Bailey said the time for such action was not now, but that the high level of central bank asset purchases “shouldn’t always be taken for granted”.
“When the time comes to withdraw monetary stimulus, in my opinion it may be better to consider adjusting the level of reserves first without waiting to raise interest rates on a sustained basis,” Bailey wrote in an article for Bloomberg.
Last week the Bank of England announced a further £100bn of stimulus to take its bond-buying target from £645bn to £745bn for 2020. However, it said the rate of QE would decrease for the rest of the year.
The Bank’s monetary policy committee slashed interest rates to 0.1 per cent back in March to combat coronavirus.
Bailey’s comments today signal a shift away from his predecessor Mark Carney’s strategy.
Carney had said the Bank would raise rates before trying to sell bonds back to the market.
But Bailey said today he did not want high Bank of England purchases of government bonds to become a long-standing scenario.
“Elevated balance sheets could limit the room for manoeuvre in future emergencies,” he said.
The Bank of England has purchased huge amounts of government bonds since the start of the coronavirus crisis.