Photographer: Chris Ratcliffe/Bloomberg

BOE’s Haldane Defends Bond-Buying Program for Post-Brexit Boost

  • Chief economist comments amid controversy over policy
  • Cites impact on yields, exchange rates, equities in August

The Bank of England’s August decision to extend quantitative easing had a material effect on financial markets and evidence shows that the policy boosts economic growth, Chief Economist Andy Haldane said.

“If you ask the question what has QE done for us, actually if you look at these estimates, the answer is quite a lot in boosting money spending relative to what it would had been,” Haldane said in a speech on Wednesday in London. Asset purchases of 435 billion pounds ($534 billion) have the effect of boosting spending by about 300 billion pounds -- “which is not nothing.”

His comments follow weeks of criticism of the BOE’s use of asset purchases and ultra-low interest rates, including Prime Minister Theresa May saying the stimulus has had “bad side effects.” Policy makers have stepped up the defense of their decision in recent weeks with BOE Governor Mark Carney saying that the move to add stimulus had helped support growth and prevent further job losses.

In a change from his originally scheduled topic of digital currencies, Haldane spoke after the publication of a staff working paper co-authored with BOE economists including Matt Roberts-Sklar, Tomasz Wieladek and Chris Young, which found that the impact of QE varies across countries and time. There’s some evidence that the policy is more effective in impaired markets like those at the time of the financial crisis, the paper found.

‘Clean Case’

“The MPC’s Aug. 4 policy package provides a clean case study of the impact QE might have on financial markets and the various asset-market channels in operation,” the economists wrote. “The effects on the yield curve, equity prices, corporate bond spreads and the exchange rate were all large and significant, consistent with a material loosening of credit conditions.”

The authors said that QE helps to boost growth and inflation. The policy also has strong spillover effects in other countries, the economists found, which can be larger than equivalent-sized domestic monetary interventions.

Haldane was among the majority in the nine-member Monetary Policy Committee to vote to extend their QE target to 435 billion pounds as well as cut interest rates at their Aug. 4 meeting. The central bank is set to publish details of the second half of the program when they announce their next policy decision and forecasts on Nov. 3.

The issue of central bank independence has rumbled on since May’s comments at the Conservative Party conference at the start of the month. William Hague, the former Conservative leader, weighed in this week in a newspaper article, saying central banks’ failure to reverse ultra-loose policy could cost them their independence.

While policy makers have defended their policies, Haldane himself helped fuel the controversy when he suggested in August that property is perhaps a better retirement investment than a pension.

Yet, the BOE has some high profile support. Chancellor of the Exchequer Philip Hammond said Wednesday that the impacts of monetary policy must be looked at “in the round,” and that any negative side effects should be viewed in the context of it also having delivered 2.7 million jobs. He is also expected to announce new fiscal policy measures at his Autumn statement next month.

“Distributional issues are important,” Haldane said in his speech. “But ultimately they are for another day, and indeed as a central banker, probably for another person.”

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