LONDON, Jan. 13 (Reuters) – The Bank of England said on Wednesday it would do more to quantify the potential losses from its £ 895 billion ($ 1.22 trillion) bond purchase program, in order let the government and the public know clearly how much money is at stake.
The UK government has so far received more than £ 110bn in profits accounted for by the BoE’s Asset Purchase Facility (APF) – partly representing interest payments that a branch of the state pays to another.
But the government is obliged to compensate the BoE if the central bank suffers losses on its quantitative easing (QE) program, which is likely if the BoE decides to resell bonds in the market at a time when rates are falling. interest are higher.
These cash payments to the BoE could amount to tens of billions of pounds in a single year.
“Given the potential for institutional and public memory to disappear, it is important that the arrangements to manage a cash flow reversal remain well understood by relevant stakeholders, in advance,” the BoE said in a statement. new report.
The report was ordered by the BoE’s Court of Directors, which oversees BoE Governor Andrew Bailey and other executives.
The BoE has bought government bonds since the 2009 financial crisis as part of efforts to keep inflation at its 2% target.
Bailey said that while the purchases reduced the government’s borrowing costs, their aim was to stabilize inflation and markets, not to secure additional government spending.
The BoE said on Wednesday that it would release new estimates this year of potential payments the government may have to make due to future QE-related losses. An estimate in 2017 showed a scenario where the government is expected to pay the BoE more than £ 20 billion in 2060 and again in 2065.
Since then, the BoE has doubled its target for asset purchases and a drop in gilt yields to historically low levels means it has paid near record prices for government bonds which constitute the overwhelming majority of the program.
The actual profits and losses of the APF will depend heavily on both BoE interest rates and market rates, as well as the timing and scale of future gilding sales.
BoE officials said they never plan to resell all of the government debt they bought, due to changes in the structure of banks and financial markets since the 2008-09 financial crisis. ($ 1 = 0.7331 pounds) (Reporting by David Milliken; Editing by Jon Boyle)
