BOE McCafferty: More Work Needed On QE Unwind; Won't Mirror QE

--McCafferty: Still Good Arguments To Think QE Unwind Only Appropriate After

"Several" Hikes

By David Robinson

     LONDON (MNI) - Bank of England Monetary Policy Committee member Ian

McCafferty said Thursday that more research was needed into the likely impact of

the unwinding of quantitative easing, but he said there were good reasons to

think starting unwind would not be appropriate until after "several" rate hikes.

     The MPC's position has been that QE unwind should not start until Bank

Rate, currently at 0.25%, is raised up to 2.0% but McCafferty did not cite the

2.0% figure, instead leaving it vaguer as to how soon unwinding could begin. In

a speech at the Company of Founders, McCafferty also said that there was little

the MPC could do to reverse Brexit effects but it could factor in its impact on

business and consumer confidence.

     "It is most likely that the effects on the economy of asset sales will not

simply be the reverse of asset purchases. The transmission channels and the

multipliers on the way out are unlikely to be equal and opposite to those on the

way in, given that financial markets are less dysfunctional and the signalling

channel present at the onset of QE ... are likely to be less potent," McCafferty

said.

     While QE unwind is likely to have less overall impact, McCafferty said that

it was likely to alter the steepness of the yield curve.

     He did not endorse the view that QE unwind could run alongside the initial

hikes in Bank Rate but nor did he endorse the 2.0% Bank Rate threshold for

unwinding.

     "There are good arguments for allowing Bank Rate to rise to a level that

would then allow policy to be set effectively in either direction before

starting to reduce the level of assets the Bank holds on its balance sheet. That

would suggest that there is no need to consider the unwinding process until Bank

Rate has been increased several times," he said.

     The policymaker also said that the cyclical factors lowering the neutral

level for Bank Rate appeared to have eased but the structural factors, most

notably demographics, remained.

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

[TOPICS: M$B$$$,M$E$$$,M$$BE$]