From September 28, the central bank wants to purchase government bonds with long maturities.
(Photo: AP)
London The British financial markets remain turbulent. The local currency pound went up and down on Wednesday after the Bank of England announced bond purchases to stabilize the stock markets.
The British currency then initially jumped by around one percent to $ 1.0837, but then immediately rushed back down to $ 1.0685. At the same time, investors grabbed British government bonds, which caused the yields, which had been soaring in the past few days, to come down.
The yield on the particularly interest-sensitive two-year British bonds fell to 4.278 percent from the previous 4.550 percent. The interest on the ten-year paper dropped to 4.373 from 4.558 percent.
The Bank of England has launched a temporary government bond-buying programme. From September 28, the central bank will purchase long-dated government bonds to “restore orderly market conditions,” she said.
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The British central bank is in a conflict of goals because it actually has to raise interest rates because of the high inflation. However, too abrupt an increase in long-term yields could endanger financial stability.
From the point of view of the US economist Mohamed El-Erian, the decision illustrates the worsening of the political dilemma. He referenced it on Twitterthat the British central bank was on the verge of selling government bonds from its holdings and further raising interest rates.
Last week, the British central bank raised the short-term key interest rate by 0.5 percentage points to 2.25 percent. It also confirmed its intention to sell £80bn of bonds over the next 12 months.
Bank of England wants to calm the financial market with bond purchases
The trigger for the current turmoil was the announcement by the new British finance minister, Kwasi Kwarteng, that he intended to use billions in aid to cushion the high energy prices and at the same time lower taxes.
Doubts about the financing of the projects pushed the British currency to an all-time low of $1.0327 at the beginning of the week. The UK two-year bond yield had shot up more than a full percentage point in two days
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