Update 2: BOE Broadbent - Sometimes Dovish, Sometimes Hawkish
First Published Tuesday, 17th May 2011 03:03 pm - © 2011 MNI News
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--Agrees With 'Broad Thrust' Of Present MPC Policy, BOE Fcasts --Inflation Will Fall Back To Target In 2012 Once One-Off Effects Fade --Comments Suggest Broadbent A Pragmatic Supporter Of MPC Mainstream --Fiscal Retrenchment May Be One Reason For Growth Slowdown
LONDON (MNI) - Bank of England Monetary Policy Committee Nominee Ben Broadbent equivocated today on whether he would be a hawk or a dove when he joins the committee at the start of next month.
"I'm not willing to say exactly what I would have done as I genuinely do not know...," he told the UK parliament's Treasury Select Committee.
"I've not followed every number so I really don't know". While he said that there was something to be said for Andrew Sentance's support for a rate hike, he added:
"You only have to look at the split of the vote across the committee over several months, more than a year to see that there are strong arguments on both sides".
"There's clearly a respectable case to be made (for higher rates)," he continued.
"On the other hand there are huge risks in both directions still. That is why you've had a split vote for quite a long time".
Broadbent said that he sometimes leaned in a dovish direction and sometimes in a hawkish one, but said he agreed with the 'broad thrust' of policy being pursued by the MPC:
"Sometimes one, sometimes the other. I don't think I've always been in the same direction... the broad thrust of policy I think I've followed pretty much".
But he refused to precommit to any particular rate path:
"I really don't see any upside to my precommitting to a point of view even before I join the committee, that would be wrong".
The comments suggest that Broadbent will turn out to be a pragmatic supporter of the MPC majority which has kept rates unchanged despite calls from a minority on the committee for rate hikes, following high headline rates of inflation. As he replaces uber hawk Andrew Sentance, this potentially pushes the overall balance of the MPC in a dovish direction.
"The big decision was very aggressively to ease monetary policy in late 2008 and early 2009... it was the right speed. The right amount? To be quite honest we have so little experience of measuring the effects of bond purchases that judging the right amount of QE is necessary".
Broadbent blamed the rise in oil and commodities prices for the way in which the BOE had allowed inflation to drift so far above its 2% target. But he was confident it would fall back:
"There has been a significant rise in the price of not just oil, but all commodities... often the target has been missed for very much that reason. That's been the primary thing, this year, in particular, we've also had the rise in VAT. If you strip both things out then you're much closer to the target. We would expect that when both those things have dropped out of the inflation rate in 2012 then inflation will be much closer to the target".
There was no strong evidence, Broadbent said, that inflation expectations had become delinked from the target, but it was a risk:
"Clearly there is a risk that the longer that these things go on, that it gets embedded into people's baseline view of what the underlying rate of inflation is... I see know strong evidence that they have become deanchored".
"I'm slightly suprised to see that they haven't done so, it's not to say that they won't".
"My best guess is that it (CPI) will come down next year," he said.
Broadbent said he would cast his vote as he saw fit in order to meet the inflation target.
The official said that fiscal retrenchment would most likely have an impact on demand and admitted that it could be one reason why UK economic growth had slowed so much recently: "Broadly speaking, there's always room for slightly different paths but we faced in 2009-10 as a result of the financial crisis this monumental deficit, unsustainable and much of that structural and had to be reduced. It does have an impact (retrenchment on demand). It has an impact on demand, it may be one of the reasons why growth has slowed over the last few months".
Pressed on whether there could be a case in the near future for an easing of policy, Broadbent said that if growth slowed much further then policy would have to be eased via further QE given the low level of interest rates.
"If there's a case for easing policy when Bank Rate is at, or close to zero, then it's going to be QE. There's no room for a rate reduction".
But he cautioned that it was not his central scenario that growth would slow further:
"If the economy were generally slower, and I have to say that's not my central expectation... the reason you would want to engage in another round of QE is that you are concerned that in the medium-term that inflation would undershoot the target". --London newsroom: 4420 7 862 7492; email: email@example.com