The central bank said it has watched “significant repricing” of UK and global assets in recent days.
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LONDON- bank of england It will suspend the start of its planned gilt sale next week and temporarily begin buying long-term bonds to defuse the market chaos unleashed by the new government’s so-called “mini-budget”.
UK gilt yields were heading for their sharpest monthly gains since at least 1957, as investors fled British fixed-income markets following new fiscal policy announcements. Great among the measures unfunded tax breaks global criticism, including the IMF.
In a statement Wednesday, the central bank said it had watched “significant repricing” of UK and global assets in recent days, hitting long-term UK government debt particularly hard.
“If this market dysfunction continues or worsens, it would be a significant risk to the UK’s financial stability. This would lead to an undue tightening of financing conditions and a reduced flow of credit to the real economy,” said the Bank of England. aforementioned.
“In line with its objective of financial stability, the Bank of England stands ready to restore market functioning and mitigate any risk to UK households and businesses, from contagion to credit terms.”
Beginning Wednesday, the Bank said it will begin temporary purchases of long-term UK government bonds to “restore stable market conditions”, and these will be “on scale” to calm markets.
The bank’s Financial Policy Committee acknowledged Wednesday that the dysfunctional gilded market poses a significant risk to the country’s financial stability and chose to act immediately.
The bank said the Monetary Policy Board’s target of £80 billion ($85 billion) annual reduction in gold assets remains unchanged and the first gold sales – originally scheduled for Monday – will now take place in October. 31.
A spokesperson for the UK Treasury confirmed that the operation was “fully compensated” by the Treasury and said Finance Minister Kwasi Kwarteng was “depending on the independence of the Bank of England”.
“The government will continue to work closely with the Bank to support financial stability and inflation targets,” the spokesperson said. said.
The bank said it will release a market announcement “soon” outlining the operational details of the program.
yield 30 years of gilding in England and 10 years of gilding It fell more than 30 basis points after the announcement.
‘Caught in the crossfire’
Antoine Bouvet, senior rate strategist at ING, said that if gilded market volatility continues, the Bank of England may need to extend its bond purchases beyond the first two-week period and an additional increase in interest rates is not off the table.
Bouvet told CNBC shortly after the announcement that the Bank’s first priority for now should be the functioning of the gilded market, suggesting that the worst outcome would be the sovereign’s lack of access to the market and its inability to secure financing.
“Obviously the gilded market was caught in a crossfire between the Bank of England and the Treasury, and it’s not exactly like that, but it seemed to be competing or working cross-purposes,” Bouvet said. Said.
“So you have a world where there is a recession and the BOE is trying to cool the economy with price hikes, and on the other hand you have the Treasury trying to protect the economy from this recession and implementing inflationary fiscal measures.”
He said the Treasury’s statement of support was important and the government would be willing to avoid the impression that the gilded market was “in too much trouble” and forcing the Bank of England to bail out the economy.
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