The Bank of England chose not to buy any bonds yesterday under its emergency two-week operation to calm gilt markets, turning down offers from traders looking to sell £2.2 billion of debt.
Having bought only £22 million of UK government bonds on Monday, the latest lack of intervention suggests that the Bank has so far succeeded in halting a dramatic sell-off without having to spend anywhere near what it had originally set aside.
Oh. Right. How’s this?
IT’S CALLED EXPECTATIONS MANAGEMENT
This isn’t to say that everything is hunky dory, nor to prance with glee at the joyousness of monetary policy. It is though to point out that central banks work by expectations management. If they’re independent and the markets trust them to remain so of course. Failure to understand that means that monetary policy will remain a complete mystery – as, unfortunately, it seems to be for many people.