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Monday, the Bank for International Settlements said the Federal Reserve, the Bank of England and the Swiss National Bank may need to frame different exit strategies from the monetary stimulus measures, as they have different views on how bond purchases would support economic growth.
"The Bank of England and the Federal Reserve, purchasing bonds in order to lower long-term rates, and the Swiss National Bank, purchasing foreign exchange to hold down the Swiss franc, find themselves in different positions from the BoJ," BIS official Robert McCauley wrote in a report, which is part of the latest BIS quarterly review.
The Basel, Switzerland-based BIS said various considerations will bear on the choice of the exit path for these central banks, including market functioning, prices and reaction, as well as the run-off of any short-term assets. Different concepts of balance sheet policy - stock versus flow - may also condition the path chosen.
According to the BIS report, the Fed is of the view that hiking interest rate would given enough stimulus without bond sales, while the BoE may want to raise the bank rate and may sell assets at the same time.
The BoE believes that raising the short-term interest rate, while never selling the bond holdings would be "to tap the brake while the other foot remained firmly on the accelerator", the report said. But, the Fed thinks, "without a foot on the accelerator, one could consistently tap the brake."
While deciding to leave its base rate unchanged at a record low of 0.5% on September 10, the BoE also chose to continue the GBP 175 billion asset purchase scheme. The central bank expects the asset purchase scheme to take another two months to complete and will review the scale of the scheme from time to time.
The Swiss National Bank has offered little guidance on its exit from its policy of purchases of foreign assets to resist currency appreciation, the official noted.
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