UK | MPC’s hawkish shift puts spotlight on reversing QE
Rising odds of an early rate hike have brought the BoE’s guidance on when it will start reversing course on asset purchases into sharper focus. Market rate pricing currently suggest that reinvestments could cease as early as spring 2022, although we think August next year is more likely.
What you will learn:
- Assuming financial markets are functioning normally at that point, and the future path of interest rates is clearly signalled, the MPC believes the
macroeconomic consequences of quantitative tightening (QT) would be small. - In our view, the MPC’s premise is reasonable. Decisions around QT shouldn’t greatly affect the pace at which the official interest rate rises, nor the space to cut borrowing costs in the event of a future shock.
- But even allowing for a muted effect from QT and scope to take rates negative, the BoE’s room to support the economy with rate cuts will be very limited for years to come. So QE-to-QT is unlikely to be a one-way street.
Tags:
Related Services
Post
Housing supply front and centre for policy makers
The passing of the previously delayed Housing Australia Future Fund (HAFF) means that all the Albanese government's announced housing policies are now in place. These policies represent a minimum funding pool of $5.5 billion stretching to the end of the decade, potentially lifting as high as $10 billion if all targets are met and excess fund returns achieved.
Find Out More
Post
BoJ will continue effective zero interest rate policy anyway in Japan
The Bank of Japan (BoJ) maintained the policy rates at its September meeting, following a tweak in its yield curve control policy in July. Although this decision was widely expected, the markets are starting to speculate policy changes within the coming quarters, especially after the BoJ governor's recent interview.
Find Out More