Re-establishing market functioning ultimately relies on the behaviour of market participants. The central bank can support this process, but in the end it is the private sector that creates and maintains the market. Designing the appropriate tools to support and provide a backstop for market functioning is an important agenda for the global central banking community. As the example of the recent Bank of England interventions demonstrates, we are still in a learning-by-doing phase of this process. Concluding remarks Where does this leave the conduct of monetary policy in a context of financial stability operations? I will conclude with two points I see as key. First, it is important to keep such financial stability operations distinct from monetary policy, both in terms of communication and operationally. To the extent that such operations distort the intended monetary policy signal, they paradoxically risk interfering with monetary policy transmission, even as they are intended to support the market functioning on which that transmission relies. Second, while respecting the need for separation between monetary policy and financial stability operations, policy makers also need to recognise the unavoidable interactions between the two. After all, an injection of central bank reserves owing to a financial stability operation can have monetary implications via the portfolio balance channel just like QE. And, by design, financial stability operations will have implications for asset prices and financial markets and institutions that influence the overall stance of financial conditions, and thus highly relevant in deciding the appropriate level of Bank Rate.
Nonetheless, the point made here holds: if asset purchases are intended to complement the setting of Bank Rate by supporting the transmission of monetary policy decisions reflected in the changing Bank Rate, then these asset purchases will take place in parallel with Bank Rate changes, rather than once the scope for Bank Rate changes has been exhausted,