Some central banks abandon the fight against inflation in the midst of a currency crisis

(KNSI) – A central bank is rolling back its tighter monetary policy, which could be a preview of interventions in the coming weeks.

The Bank of England announced early Wednesday that it was buying gilts, Britain’s equivalent to Treasury bills, to lower borrowing costs in the country. The policy is known as quantitative easing, one of many emergency measures that have been developed to deal with financial crises over the past decades.

Dean of the School of Public Affairs at Saint Cloud State University, King Banaian, said he expects the Federal Reserve to use emergency tools as a safety net if foreign banks seek relief then as their respective bonds and currencies sell.

“I think we would expect them to get some help in terms of access to the US dollar through currency swaps that will give them the ability to not necessarily stop the depreciation of those exchange rates. , but at least to slow their decline.”

Banaian says it’s difficult to roll out such measures in a time of high inflation.

If the US Federal Reserve opens the discount window to make liquidity available to struggling financial markets, it will most likely do so in a targeted way to keep inflation under control. Sterilized loans refer to a policy that includes emergency financial measures without expanding the overall money supply. For every dollar spent on alleviating a liquidity crunch, it is taken away by a crunch elsewhere. Banaian says this could have huge ramifications for the housing market.

“The mortgage-backed securities that have been purchased, those are not going off the balance sheet as the Fed intended and the question is whether they should sterilize them as well. [emergency] loans, should they actually start trying to sell these mortgage-backed securities, and if so, what happens to mortgage rates? »

Pending home sales fell 2% in August, down more than 20% from a year ago. Soaring mortgage rates pushed potential buyers away. US Treasury yields fell significantly on Wednesday following Bank of England actions.


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