-Broadbent: Not Convinced Cut In Bank Rate Would Be Right Thing To Do
LONDON (MNI) – The Bank of England’s Monetary Policy Committee has
the right amount of stimulus in place at present and a cut in Bank Rate
is probably not the right thing to do, MPC member Ben Broadbent said.
In a question and answer session at a Bloomberg event, Broadbent
was asked if he was one of the MPC members who saw the current policy
debate as “finely balanced”. He said simply that current policy settings
were the right ones and he rejected the International Monetary Fund’s
suggestion that the MPC could cut Bank Rate.
The MPC has left Bank Rate at 0.5% since the height of the
financial crisis, rather than taking it down to, or closer to, zero.
Broadbent said the MPC had looked at the case for a cut in Bank
Rate and it was wrong to say it was resisting widespread calls for one.
“The MPC was the one that raised that possibility (of cutting Bank
Rate) right at the beginning,” he said.
“When the cost of securities capital is close to whatever it is,
9-10%, taking 25 basis points off Bank Rate, even if all else were
equal, doesn’t seem to me that material,” he said.
“We’re not resisting, we’re just not convinced that it’s the right
thing to do,” he added.
He said lowering Bank Rate was also likely to hit banks’ margins,
as they base many of their rates on it.
In his earlier speech, Broadbent said Eurozone risks have already
hit UK investment and economic activity and that markets have priced in
the belief monetary policy will be eased if extreme euro area risks
materialise.
“For the time being at least, the most important policy decisions
affecting the UK are being taken in other parts of the continent,”
Broadbent says.
Broadbent voted for unchanged policy at the March, April and May
policy meetings.
Asked if the current stimulus, with quantitative easing totalling
Stg325 billion, was sufficient Broadbent said “Yes, clearly I believe
that.”
“That’s why I voted not to change policy at each of the last three
meetings. The forecasts in May (in the BOE Inflation Report) were
consistent with, two years out … roughly speaking balanced risks
either side of the target. These things can change, that’s why we have
monthly meetings,” he said.
Broadbent also said that the weakness of productivity growth in the
UK, which has fallen to well below its pre-crisis trend rate, has added
to the difficulties facing the MPC, in part because it is hard to know
when it will recover.
“Slower productivity growth has complicated policy. More to the
point, the difficulty of predicting what it’s going to do, because we
have to set policy with an eye on the future, is what has made it very
difficult to predict,” he said.
Broadbent said the problems in capital allocation in the wake of
the credit crunch may have resulted in firms that should be getting
resources not getting them, and ones that could have gone out of
business clinging on. The plunge in productivity has compromised policy,
he said.
“Clearly this has compromised our ability to set policy in the
sense that it’s meant that inevitably growth will be weaker , whatever
monetary policy is able to do consistent with inflation,” he said.
While arguing that stimulus was sufficient for now, Broadbent made
clear the MPC was involved in contingency planning in the event of
extreme difficulties in the euro area, and that it would act if
necessary.
“There’s all sorts of planning going on should various things
occur. We would be irresponsible if we were not thinking about things
like that,” he said.
-London newsroom: 4420 7 862 7491; email: drobinson@marketnews.com
wwilkes@marketnews.com
[TOPICS: M$B$$$,M$$BE$]
