Bond-buying remains BoE’s main stimulus tool – Ramsden By Reuters

By William Schomberg and David Milliken

LONDON (Reuters) – Bank of England Deputy Governor Dave Ramsden said the central bank’s quantitative easing bond-buying programme is still its most immediate economic stimulus option, and discussion of negative interest rates represented contingency planning.

“My overall take on QE is still that it is a tried and tested tool,” Ramsden said in a speech on Wednesday to the University of Birmingham. “For me it is the marginal monetary policy tool at present.”

The BoE has doubled the size of its bond-buying programme to almost 900 billion pounds ($1.24 trillion) over the past year as it sought to protect Britain’s economy from the impact of the coronavirus crisis and the government’s lockdown strategy.

When the pandemic hit a year ago, the BoE also cut interest rates to a record low of 0.1% and this month it gave banks six months to get ready for any decision to take rates below zero.

Ramsden said that represented “transparent contingency planning for possible future uses of our monetary policy tools”.

He also said there were links between QE and the huge issuance of bonds by the government to fund its emergency spending to help the economy cope with the pandemic.

“But these are very different from the charge of ‘monetary financing’,” he said, referring to concerns that the BoE and other central banks have resorted to bailing out governments.

Financial markets’ inflation expectations have remained in check, which would not be the case if markets doubted the BoE’s commitment to its 2% inflation target, Ramsden said.

Ramsden added that the BoE was grappling with how to ensure its purchases of corporate bonds – which account for a small fraction of its total QE programme – were aligned with the government’s push to make Britain’s economy less carbon intensive.

“It is worth saying that the question of how best we might incorporate climate considerations is not a straightforward one. Simply labelling firms as ‘green’ or ‘not green’ at a point in time isn’t necessarily enough,” he said.

“What is needed is an approach that would incentivise companies to make the transition from one state to the other.”

($1 = 0.7231 pounds)