BoE’s Cunliffe says Russian crisis will increase rate change risks

Britain’s Bank of England Deputy Governor Jon Cunliffe speaks during the Bank of England’s Financial Stability Report at the Bank of England in the City of London, Britain, on 27 June 2017. REUTERS/Jonathan Brady/Pool

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LONDON, March 2 (Reuters) – Bank of England Deputy Governor Jon Cunliffe said the crisis sparked by Russia’s invasion of Ukraine would deepen the risks already raised by the move to lower rates. higher interest rates, which led to strong fluctuations in the financial markets.

“The heightened perception of geopolitical risks and the potential impacts on growth and inflation can only heighten the risks associated with the riskier asset adjustment that is already underway,” Cunliffe said.

“And this comes during a period of relatively low market liquidity,” he said in a speech at Oxford University on Wednesday.

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Cunliffe said the sanctions announced so far against Russia do not threaten the stability of the financial system, although they will cause serious damage to the Russian economy.

The BoE has hiked interest rates twice since December, the first increases by a major central bank since the coronavirus pandemic swept through the global economy. The US Federal Reserve announced that it will also raise borrowing costs this month.

The decision by central banks to face a jump in inflation, caused by the reopening of their economies, caused a sharp drop in the value of riskier assets such as equities.

Cunliffe said any sudden increase in betting on future interest rate movements could trigger “a sharp outflow from risky assets”, while a drop in expectations about the economic outlook could amplify the shift.

“I’m not saying markets won’t be able to handle the necessary adjustments. Nor that we’ll experience another ‘money rush,'” he said, referring to a panicked flight to assets. safe by investors at the start of the pandemic.

“But all of this, in my view, underscores my first lesson: that ensuring financial stability means ensuring that the financial system has the resilience to withstand severe and unforeseen shocks, whatever the cause.”

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Written by William Schomberg; Editing by Kate Holton

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