• Sat. Oct 5th, 2024

Saunders Says Additional BOE Easing May be Needed

Avatar

By

Sep 3, 2020
Saunders Says Additional BOE Easing May be Needed

According to Central Bank official Michael Saunders, Further easing in the monetary policy would be required by the Bank of England for helping combat the economic consequences of the coronavirus. Also a member of the BOE’s rate-setting committee, Saunders said in a speech on Friday the risks are on the downside when it comes to the growth forecasts of the central bank’s growth. He also said that the bank should take strong steps against such threats. Initially, the pound had slipped in value and the gilts had pared losses. Saunders said that according to him, additional monetary easing would be needed for achieving a sustained return of inflation to the set target at 2%.

He said that he believed risks were on the weaker side of growth and they would have a longer period of excess supply than had been forecasted. When answering questions after his speech, Saunders said that there was scope of expanding the bond-buying plan of the BOE. He added that officials were still reviewing whether it would be an effective form of stimulus to take the interest rates below zero. His comments are the most recent addition to a string of dovish comments made by officials of the BOE, as they are trying to convince markets that they do have enough firepower for dealing with what could be a chaotic closure to 2020.

The furlough plan initiated by the government will come to an end next month, despite warnings by think tanks that millions of workers will still be depending on wage support. This is increasing pressure on Rishi Sunak, the Chancellor of the Exchequer, to increase aid for preventing a dramatic surge in unemployment. Such a step has already been taken by other European nations, such as Germany. So far, Sunak has ruled this out.

On Wednesday, while testifying to lawmakers, Deputy Governor Dave Ramsden stated that the BOE did have the capacity of increasing the size and pace of its bond-buying program, if required. Last week, Governor Andrew Bailey said that there is plenty of room at the central bank to add monetary stimulus, which also includes adding negative interest rates. A range of stimulus measures has already been unleashed by the BOE in the wake of the pandemic. This including cutting down the interest rate to a record low of 0.1%, along with increasing its asset-purchase target to 745 billion pounds, which is a surge of 300 billion pounds.

Investors and economists expect the bank to expand its bond-buying plan amidst concerns of unemployment later this year. Amongst developed nations, the biggest contraction was experienced by the United Kingdom in the second quarter. Furthermore, any economic recovery could also be derailed by a messy Brexit at the end of 2020 or a resurgence of the coronavirus. Saunders said that almost half of the firms are expecting the UK to have no trading deal when the current Brexit-transition period comes to an end on December 31st. He added that there will be a marked increase in unemployment with the government wage-support program coming to an end and weak demand.

Avatar

Leave a Reply

Your email address will not be published. Required fields are marked *