In an opinion piece for Bloomberg, Bailey wrote: “When the time comes to withdraw monetary stimulus, in my opinion it may be better to consider adjusting the level of reserves first without waiting to raise interest rates on a sustained basis.”
In the piece, Bailey said the bank’s response was the right thing to do but warned the financial system should not become reliant on the “extraordinary levels” of reserves.
“The role of central bank reserves shouldn’t always be taken for granted.
“Rather than having to keep relying on central bank support for all aspects of the financial system, we need a robust assessment of the latter’s weaknesses,” he wrote.
“As economies recover, it’s likely that some of the exceptional monetary stimulus will need to be withdrawn, including by reducing reserves.”