The operation of monetary policy

Quarterly Bulletin 1996 Q2
Published on 01 June 1996
  • The year-long rally in international bond markets came to an end in the first quarter, as markets anticipated a turning point in official interest rates. Price volatility implied by options on bonds in major markets also increased.
  • UK official interest rates were reduced twice in the first quarter, on 18 January and 8 March.
  • Technical conditions in the money market were difficult at times during the quarter, reflecting in part market anticipation of a cut in rates.
  • Gilts not only shared in the global rise in yields, but saw spreads widen against continental Europe. Yields on conventional gilts rose by much more than those on index-linked gilts.
  • Funding in 1995/96 met the Government’s remit to the Bank. Successful bids in the three gilt auctions held in the quarter were widely spread. The Government’s funding remit to the Bank for 1996/97 was published on 27 March 1996.
  • Foreign exchange markets were much calmer than bond markets in the quarter. Sterling strengthened a little on balance.

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