The deputy governor of the Bank of England, Dave Ramsden, has said its £65bn of emergency bond purchases announced yesterday would be unwound in a smooth and orderly fashion.
And he added the Bank was on alert for further signs of strain, following the pressure on pension funds from the fall in gilt prices.
Speaking remotely to a "Future of Central Banking" conference in Vilnius, his comments are the first since the Bank began its operations yesterday afternoon.
He explained: "Pressures were observed in parts of the financial system, including challenging liquidity conditions across some markets. This has naturally put us, along with other central banks and supervisors on alert for further signs of strain and the attendant risks of dysfunction.”
"UK financial assets saw significant repricing since the start of this week, particularly affecting long-dated UK government debt. Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability. This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy.”
"On 28 September, yesterday, the Bank’s Financial Policy Committee, which I’m a member of, noted the risks to UK financial stability from dysfunction in the gilt market. It recommended that action be taken and welcomed the Bank’s plans for temporary and targeted purchases in the gilt market on financial stability grounds at an urgent pace. These operations have started, with the first one carried out yesterday afternoon."
"These purchases will be strictly time limited until 14 October. They are intended to tackle a specific problem in the long-dated government bond market. The purchases will be unwound in a smooth and orderly fashion once risks to market functioning are judged to have subsided."