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October 12 2022
11:26 am
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2 minutes
Bank of England Governor Andrew Bailey confirmed Tuesday that the intervention of this financial body to stabilize the British bond market is definitely temporary, and gave pension funds three days to rebalance their assets.
“We believe that a rebalancing must be done, and my message to the concerned funds and to all the companies that manage this money is: You have three days left,” Bailey said in an interview at the Institute of International Finance in Washington.
While London is facing a chapter of acute financial instability affecting the British debt market and has led to a rise in government borrowing rates, the monetary institution was forced to intervene by purchasing long-term Treasuries (gold bonds), as well as, in a second stage, inflation-linked bonds in a precedent for the Bank of England.
“We stayed up all night for several days in a row trying to solve this problem,” Bailey said, acknowledging that monetary authorities face the challenge of two contradictory steps.
We are facing two things that go in opposite directions. We were on the path of monetary tightening, selling bonds and raising interest rates,” like most central banks to fight inflation.
He continued: At the same time, we had to decide to buy bonds to ensure financial stability.
“We have to be able to do both, we have to explain it,” he said. Now pension funds have a window to rebalance their resources.”
Treasury bonds are very popular with British pension funds. However, with their value declining, these funds have to re-inject significant liquidity to match their assets with their liabilities.
In a statement published on Tuesday, the British Association of Pension Funds called on the Bank of England to give it more time.
The association said that the period of bond purchases by the central bank should not end so quickly.
She added that many believe it should extend until October 31 or even later, rather than Friday.
Asked about UK fiscal policy, Bailey said it was important for the government to rely on the forecasts of the Balance Sheet Office, the independent public financial watchdog, because fiscal policy needed a framework.
The London plan to support the economy, presented on September 23, angered markets, which feared the disruption of British public finances.
Immediately after Bailey’s comments, the price of the pound fell sharply and lost 0.90 percent of its value to reach $1.0955 per pound.
(AFP)
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