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No let-up for central banks as recovery nears - BoE's Tenreyro

By William Schomberg
·3-min read
FILE PHOTO: A general view shows The Bank of England and the City of London financial district, amid the outbreak of the coronavirus disease (COVID-19), in London,

By William Schomberg

LONDON (Reuters) - Central banks must keep up the huge support they have pumped into their economies now that COVID-19 vaccines show that the devastating shock of the pandemic can be bridged, Bank of England interest-rate setter Silvana Tenreyro said.

Tenreyro said she backed last month's 150 billion-pound ($202 billion) increase in the BoE's bond-buying, "particularly now, when we know that the vaccine is in sight, when we know that this shock should be temporary and go away".

The case for stimulus would have been harder if the pandemic looked more permanent, she told the annual Reuters Investment Outlook Summit.

Central banks around the world have ramped up their bond-buying since the start of the pandemic – the BoE is doubling its programme to 895 billion pounds - helping governments to fund $12 trillion of extra spending and tax cuts.

But the scale of the support has also raised questions about the way central banks and governments are working together.

BoE Chief Economist Andy Haldane last week said the distinction had become blurred for some people, hurting trust in central banks as the guardians of money.

He also said it was hard to know whether he would have voted for more bond-buying last month had he known that good news about the vaccines was about to be announced.

Tenreyro struck a different tone, saying "in the very near term we have to be cautious and it is very, very important - more than ever - that we have the policy support to reach across the time in which we still have not fully recovered."


Agustin Carstens, general manager of the Bank for International Settlements, a Basel-based forum for central banks, also said it was important to keep stimulus flowing, especially when the costs of issuing debt were so low.

"Some red lines have been crossed but it has been in the context of the fulfilment of the central bank mandates," he said at the summit.

Howard Lee, deputy chief executive of the Hong Kong Monetary Authority, said there was an "interesting relationship" - whether intended or not - between monetary and fiscal policies.

"So, this sort of an interaction could become even more interesting or more challenging going forward," Lee said.

But Carstens, a former governor of Mexico's central bank, said he saw no risk that governments would lean on central banks to keep buying their debt after the crisis eases.

"I have been in this fraternity of central banks for many, many decades. I can tell you that there is very strong conviction that when push will come to shove, there will be no doubt that the punch bowl will be taken away," he said.

Tenreyro reiterated her view that negative interest rates - the subject of a BoE feasibility review - had helped other economies in Europe and commercial banks because fewer loans went bad, offsetting the hit from rate margins.

"Of course, there might be idiosyncrasies we will have to address and this would be part of the discussion before we ever moved to negative rates," she said.

Carstens said he was not worried about a rise in bad loans.

"So far, I think the scenario has been better than I think would have been expected," he said.

Follow Reuters Summits on Twitter @ReutersBiz

($1 = 0.7434 pounds)

(Writing by William Schomberg; editing by Emelia Sithole-Matarise)