Bailey says fears over BoE independence are ‘without merit’

LONDON: Bank of England Governor Andrew Bailey said concerns that the BoE had compromised its independence by the huge scale of its government bond buying during the COVID-19 pandemic were "entirely without merit".

"I'm sorry to have to be blunt, I'm afraid these arguments are entirely without merit," he said in an online speech to the London School of Economics.

The BoE has doubled its target for government bond purchases to 895 billion pounds ($1.23 trillion) since the start of the pandemic last year, mirroring a similarly large increase in government borrowing.

A survey by the Financial Times last month showed major bond investors believed the central bank had calibrated its purchases to match the pace of borrowing overseen by finance minister Rishi Sunak.

Bailey said financial market inflation expectations showed that investors did not expect the BoE to break its mandate and let inflation get out of control.

Its bond purchases were focused on ensuring that inflation returned to its 2% target, he said.

However, the BoE's operational independence did not mean that it could not take action that complemented policies by the government to stabilise the economy through the coronavirus crisis, a task which was beyond the BoE alone, Bailey said.

"Independent pursuit of an inflation target does not mean that monetary policy is uncorrelated with other macro policies, including fiscal policy," he said.

"We will reverse these actions when conditions require that," Bailey added.