Since Mario Draghi’s famous statement on July 26, 2012, when he said “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.”, that there was not such a significant moment on the part of a central bank as the one that was decided yesterday by the Bank of England. Indeed, the meaning was the same as intended by Draghi, leaving no doubt that everything will be done to preserve the stability of the system, an intention that was evident in this part of the BOE statement, “The purpose of these purchases will be to restore orderly market conditions. The purchases will be carried out on whatever scale is necessary to affect this outcome”.
In other words, as decided by the ECB, his majesty’s central bank completely opened up its availability to inject into the system the amount necessary to solve the problem of obligations, namely long-term, which caused a hole in interest rates approximately 1%, indicating that the market received the message and more importantly believed that the BOE’s determination is indeed real, which relieved the selling pressure in the bond segment that was particularly evident after the prime minister, Liz Truss, revealed her mini budget, which includes a tax cut that is not financed by increased revenues, but increased debt.
It remains to be seen in the coming weeks and months whether the BOE’s action will be enough to stop the rise in interest rates and the consequent turmoil in the system, specifically in the pension funds, but it is important to stress once again the importance of central banks in solving problems created by the political aspect.
