2021-10-24-牛津经济研究院-UK_MPC_s_hawkish_shift_puts_spotlight_on_reversing_QE_4页_206kb

MPC's recent hawkish shift has brought earlier reversal of quantitative easing (QE) into sharp focus. Market expectations now anticipate the policy rate rising soon, with potential quantitative tightening (QT) beginning in months rather than years. MPC's plan to stop reinvesting assets when Bank Rate reaches 0.5% (previously 1.5%) reflects a change due to an effective lower bound below zero, and it may start selling assets when rates hit at least 1%. This contrasts with previous timings, leading to a quicker pivot from theoretical to practical asset purchase reductions.

If markets function normally, MPC believes QT's macroeconomic impact will be small, as sales occur under stable conditions unlike past turbulent periods. Evidence from historical QE announcements during crises shows minimal effect on borrowing costs in normal markets, underscored by MPC members like Vlieghe and Bailey. Reversing QE serves two purposes: creating room for aggressive policy responses in future turmoil and mitigating political criticisms, including concerns about "fiscal dominance" and central bank independence.

However, the overall space for monetary stimulus remains limited, even with potential negative rates. UK central bank actions are overshadowed by global factors, and with other major central banks like the ECB and Fed continuing or adjusting QE, BoE's QT would have a marginal effect. The state-contingent nature of QE/QT means reversals depend on specific rate levels, and if a new economic shock hits, QE could restart quickly. Despite this, MPC's guidance could withstand scrutiny from both sides of the political spectrum by providing evidence of policy effectiveness.