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Free AccessBOE Carney: Market Underestimates Tightening; No Time Guidance>
-BOE Carney: Due To UK Supply Shock Modest Growth May Impact Policy
LONDON (MNI) - Bank of England Governor Mark Carney said that the
market was likely underestimating the total amount of tightening
required over the next three years, but he refused to be drawn on when
the first rate hike was likely to come.
The BOE August Inflation Report forecasts were conditioned on
market assumptions for two 25 basis point rate hikes over three years,
with the first one coming in Q3 2018. Carney said that more tightening
than this was likely, but refused to give a steer on whether the first
hike would probably be earlier than the market assumed.
Speaking at the press conference Carney said that tightening was
likely to be less rapid and less substantial than in the "traditional"
rate cycles that pre-dated the global financial crisis, but greater than
the market was factoring in.
"We've conditioned the forecast on the market curve ... and that
curve had more than one interest rate hike over the course of three
years. We think that will be a little insufficient relative to what
would be required in order to fulfill our mandate," Carney said.
Based on the market curve, inflation was shown holding above the
MPC's 2.0% target throughout the entire three year forecast period.
Asked if, when the first hike in Bank Rate came, it should be seen
as a one-off or the start of a "traditional hiking cycle" Carney said
that traditional cycles had long gone.
"Tradition is gone for some time ...(Tightening would likely be)
More than the market, less than traditional," Carney said.
He said it would be inappropriate for him, speaking on behalf of
the MPC, to comment on when the first hike was likely to come.
The MPC is divided on the issue, with two members, Michael Saunders
and Ian McCafferty, voting for a hike at the August meeting.
In the press conference Carney also highlighted the impact that
Brexit uncertainty has had on business investment. With the UK
experiencing a supply shock, even modest growth could have implications
for the stance of monetary policy.
"The supply capacity of the economy is likely to expand at only
modest rates throughout the forecast period. That means only a modest
uptick in demand growth from current sluggish rates will be sufficient
to reduce and eventually eliminate slack," Carney said in his opening
remarks.
--London newsroom: e-mail: david.robinson@marketnews.com
[TOPICS: M$$BE$]
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.