Forget the fees: for central banks, buying assets is the name of the game

Look beyond the apparent contradiction, and it seems clear that Haldane describes the same policy. And this policy is similar to that of other major central banks: in the current context, they must continue to send the message that they can and will use all the tools, including radical or unprecedented, to help governments fight against crisis. coronavirus. Or, to quote Haldane’s boss, Governor of the Bank of England Andrew Bailey, regarding negative rates, don’t throw them away

that doesn’t mean throwing them away.

Simply suspending the possibility of negative rates can be a strong enough message to say that the measure does not have to be used. But in truth, negative rates can do little in the current crisis. Look at the ECB, whose decision to cut its key rate from -0.4% to -0.5% in March was little, except for the signal it sent that it was serious about fighting the virus-induced recession.

Lower interest rates will do little for a pent-up economy, while few businesses or households are willing to borrow more. What central banks can do is monitor the banking system, make sure there is plenty of liquidity, and take care of the bond markets to allow governments to finance the huge fiscal stimulus package they launched respective savings.

This is why the tool of the day is the purchase of bonds, also known as quantitative easing, and the key word is “flexibility”, that is to say the ability to do even more, over a longer period than that originally announced. The Bank of England and the European Central Bank have both launched pandemic-specific asset purchase programs that will end this summer. And it’s already clear that the BoE’s £ 200 billion ($ 246 billion) and the ECB’s $ 750 billion ($ 822 billion) will grow in size and last longer.

Listen to Ben Broadbent, vice-governor of the Bank of England, who said two weeks ago that it was “entirely possible” for the Bank to increase its quantitative easing program. Or Isabel Schnabel, member of the ECB Executive Board, who just mentioned In an interview that the pandemic-oriented bond buying program could be stepped up next week. The day before, the Governor of the Banque de France, François Villeroy de Galhau, another member of the Governing Council of the ECB which will meet next week, said that the bond purchase program was the cornerstone of central bank action and that it was flexible. “We are open in volume, we are open on the end date,” he insisted.

It’s a safe bet that the two central banks will spend more on asset purchases this year than they initially planned or announced. And that they will announce it as soon as possible. The duration of the bond buying game, on the other hand, depends on the speed and strength of the post-closing recovery. And this is the greatest uncertainty.