To adopt a combination of strategies in unwinding stimulus packages that were launched to tackle recession
The Bank for International Settlements (BIS), which coordinates regulations in the fields of financial services to promote international financial stability, has said in its latest report that Bank of England (BoE), Federal Reserve (Fed) and other central banks may follow different strategies to unwind monetary stimulus – reported Bloomberg.
Reportedly, last month the Fed contemplated of ending its programme of purchasing $1.25 trillion mortgagte backed securities and $200 billion housing agency debt. However, it had said that rates would stay in the range of zero to 0.25% for a prolonged period. On the other hand, BoE said that it would buy bonds of worth GBP175 billion and keep benchmark rate at 0.5%.
Robert McCauley, an official at BIS, wrote in a report that while BoE considers holding on bonds stimlates the economy, Fed thinks that buying assets would also act as a stimulus. He said: “In the UK central bank’s view, to raise the short-term interest rate while never selling the bond holdings would be to tap the brake while the other foot remained firmly on the accelerator. For the Fed, without a foot on the accelerator, one could consistently tap the brake. The Swiss National Bank, which has been pursuing a policy of holding down the Swiss franc by buying foreign assets, has offered little guidance on how it will exit this strategy,” reported the news agency.