RTTNews - There are obvious uncertainties linked to the Bank of England's GBP 125 billion asset purchase scheme and it will take at least nine months for its effect to be fully felt, the central bank deputy governor Charles Bean said in an interview to Yorkshire Post, published Tuesday.
Bean noted that the monetary policy committee is set to review the scheme in its August meeting in the light of latest data on business activity and inflation projections. He is on a week-long tour of the UK to explain the scheme.
The policymaker said there was no need to keep on purchasing assets under quantitative easing as it is the total stock of purchases that mattered. The central bank reportedly bought GBP 112 billion worth of assets thus far. He also said that quantitative easing was not a risky strategy though there are uncertainties surrounding it.
Regarding the exit route, Bean noted that there are two ways, by raising bank rate and by reversing purchases - selling the assets back. It's most plausible to think that the first thing we will do is raise bank rate and then sell the assets back over an appropriate timescale in light of market circumstances.
According to Bean, the timing of the exit from quantitative easing was important. If the measure is ended too early, then a recovery may be nipped in the bud, the policymaker said, citing the Japanese example. On the other hand, sticking on to the policy for too long may lead to an inflation surge that would call for excessive tightening thereafter, he said.
The UK economy may be near the bottom of the trough, Bean said. He also said the central bank is reasonably hopeful that growth will return next year. The policymaker dismissed speculation that the central bank is set to end the asset purchase scheme, the newspaper said. Further, Bean noted that the financial services industry is likely to have a lesser role in the UK economy going forward.
Last week, the BoE left the key interest rate unchanged at its record low of 0.5% and decided to continue with its asset purchase scheme totaling GBP 125 billion. Data released on Tuesday showed that annual inflation dropped below the central bank's target of 2% for the first time since September 2007. Annual inflation eased to 1.8% in June from 2.2% in May.
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