LONDON Jan 20 Central banks will be able to
unwind their vast bond purchases when market conditions are more
normal without a big impact on asset prices and the real
economy, Bank of England research suggested on Monday.
Since the global financial crisis of 2008-09, the world's
central banks have added trillions of dollars to their balance
sheets through government bond purchases as they pumped money
into their economies.
The research, co-authored by BoE policymaker David Miles,
showed central banks should be able to wind down that stimulus
without major disruption.
"(If) the unwinding of large-scale purchases happens when
market conditions are more normal they may have relatively
little impact on asset prices and the real economy," the study
The study also showed that one of the channels through which
quantitative easing might work - by affecting the way that
households invest - probably only has a weak effect when markets
are functioning normally.
BoE Governor Mark Carney last month said Britain had come to
the end of its 375 billion pounds ($617 billion) quantitative
easing programme, barring any additional shocks to the economy.
Instead, the debate is now focused on when the Bank of
England will raise interest rates as Britain's economic recovery
gathers further momentum.
Minutes from the BoE's latest policy meeting will be
released on Wednesday and offer the Bank a chance to tweak its
message to the markets.
More than a third of economists polled by Reuters last week
expect the BoE to set the stage for it to lower the unemployment
threshold to 6.5 percent from 7 percent - a move that will
reinforce its message that it will keep rates lower for longer.
The BoE has said it will not consider hiking interest rates
from their record low of 0.5 percent until the goal is met.