People and traffic pass by the Bank of England's Headquarters in the City of London,. Image source: Rafael Ben-Ari © 123RF.com
The Monetary Policy Committee (MPC) of the BOE expectedly maintained the near-negative Official Bank Rate unchanged at 0.10 per cent.
The Committee's decision regarding the Bank's Asset Purchase Facility also met the consensus forecasts, in that the purchases of UK government bonds in the primary markets was scaled up by an additional £100 billion. The programme is financed by the BOE's reserves.
The Committee also voted to keep the existing framework of £200 billion of 'UK government bond and sterling non-financial investment-grade corporate bond purchases'.
" With liquidity conditions having stabilised, purchases can now be conducted at a slower pace than was necessary during the earlier period of dysfunction. Should conditions worsen materially again, however, the Bank stands ready to increase the pace of purchases to ensure the effective transmission of monetary policy."
The decision, as we demonstrated in our analysis from today, was substantiated by two key factors. First of all, the BOE had to adjust its monetary policy stance within the context of the global trends already established by other central banks.
Second of all, the BOE had to accommodate the reeling British economy, which continues to be impeded by the coronavirus fallout coupled with the protracted Brexit negotiation woes.
As can be judged from the above excerpt taken out of the MPC's post-decision statement, the Committee members are confident that their initial reaction to the coronavirus crisis was sufficient in cushioning the overall economic toll.
The next major challenge for the Bank would be to foster sustained recovery as the British economy reopens and Governmental restrictions get lifted. In order to achieve this goal, the MPC would have to follow a clear and concise policy that closely reflects on the most recent developments.
That is why the markets reacted rather sharply to the decision, due to the fact that the latter was not reached unanimously amongst the Committee's 9 members. Quite surprisingly, one member voted against the decision to scale up BOE's asset purchase facility, which alluded to certain discords amongst the MPC.
The value of the pound was affected negatively as a consequence, in the wake of the decision's release.
As can be seen from the hourly chart below, the GBPUSD's underlying volatility was increased tremendously in the last couple of hours, as the market struggles to price in the outcome of the BOE's monetary policy meeting.
The price action is currently attempting to break down below the descending channel's lower boundary.
GBPUSD 1H Price Chart. Image source: Trendsharks ©, created with TradingView.com
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