BoE will not use monetary financing to fight coronavirus crisis


Reuters | London | Updated: 05-04-2020 23:34 IST | Created: 05-04-2020 21:16 IST
BoE will not use monetary financing to fight coronavirus crisis
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The Bank of England will not resort to monetary financing - irreversibly printing money to help the government increase spending - as it tries to shield Britain's economy from the coronavirus crisis, its governor Andrew Bailey said.

The BoE last month ramped up is bond-buying programme by a record 200 billion pounds ($245.20 billion) - similar to moves by the Federal Reserve and the European Central Bank - a day before the government announced a huge increase in spending. But Bailey said he would oppose any calls for the BoE to print money simply to help the government.

"Using monetary financing would damage credibility on controlling inflation by eroding operational independence," Bailey said in an opinion piece published by the Financial Times on Sunday. "It would also ultimately result in an unsustainable central bank balance sheet and is incompatible with the pursuit of an inflation target by an independent central bank."

When the BoE announced the bond purchase expansion on March 19, most of it for government bonds, Bailey stressed he was not abandoning the long-standing concerns of central bankers about monetary financing "because history tells us where that leads". The idea of central banks helping governments to spend more has raised concerns about a rise in inflation in the future. It has even drawn parallels with the disastrous hyperinflation of 1930s Germany and 1990s Zimbabwe.

In his article for the FT, Bailey said the BoE remained in full control of how and when the expansion of its reserves to buy bonds is unwound, and the central bank would not allow its 2% inflation target to be threatened. "If the recent expansion of bond buying appears to threaten that goal, the MPC (Monetary Policy Committee) can react," he said.

"The BoE will not hesitate to take all necessary actions both to support British businesses and households through this period of uncertainty and to ensure inflation is consistent with the 2 per cent target in the medium term." 

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)

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