The BOE has hinted at the possible end of its emergency bond-buying following the two-week intervention to shore up the financial market.
BOE to End Rescue Efforts on Friday
According to a report from the Financial Times quoting insider sources, the BOE has disclosed its readiness to extend its emergency bond purchase to Friday.
Meanwhile, the BOE Governor, Andrew Bailey, revealed that the central bank would end its rescue program. The bank executive noted that Friday is the last day of the bond-buying program, and the move will go as planned.
At an event in Washington, D.C., Bailey stated:
“All emergency financial packages are temporary. The essence is to ensure financial stability by intervening in delicate situations.”
The latest development sees the British Pound experiencing a downward decline. Moreover, the BOE’s decision to end its emergency package has sparked mixed reactions in the currency market.
However, the Pound reversed its downtrend on Wednesday following news of the BOE’s Friday deadline. The reports cited anonymous sources who were aware of the latest decision change by the BOE.
Meanwhile, this comes on the heels of the BOE Governor’s previous remarks, reiterating that the bond-buying could end on Friday.
Therefore, the Pound reacted to the news by falling to a low of $1.0992 during Asia’s morning trading session. It then shot to $1.106 following the Financial Times report on the turn of events.
Bailey reiterated the bank’s stance on the initial intervention by saying that it was meant to be temporary. The aim is to buy up the gilts till October 14 to prevent the economic crisis from getting out of control.
Beyond the deadline, the BOE has implemented several mechanisms to ease future liquidity issues.
How the U.K. Adopts Bond Buying
On September 23, the United Kingdom authorities announced an aggressive economic plan, a mini-budget. The economic measures also include unfunded tax cuts to help flatten the downward slope.
As a result, the financial market went into a tailspin, with investors selling off their Pounds assets and dumping U.K. bonds.
To stem the tide, the U.K. government, through the BOE, introduced buying long-dated bonds. The exercise was expected to last two weeks to stabilize the market. Thus, the government puts its bond sales on hold to calm the financial market.
Interestingly, most British pension funds were on the brink of collapse before the intervention, according to the BOE’s deputy governor Jon Cunliffe. After the emergency intervention, the central bank broadened its rescue packages twice.
Meanwhile, the Pensions and Lifetime Savings Association (PLSA) seeks an extension of the BOE’s emergency package. The group noted that the BOE should continue the period of bond-buying to meet the rising challenges.
The association sees the need for the BOE to provide further support for the pension sector to steady the falling bond yield.
However, should the bond buying be stopped, PLSA calls for alternative measures to manage the market volatility.