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--Five We Learnt From BOE MPC McCafferty Reuters Interview
By David Robinson
**LONDON (MNI) - Bank of England Monetary Policy Committee (MPC) member Ian
McCafferty gave an interview to Reuters which was published Tuesday.
Here are five things we learnt:
1) McCafferty does not believe the apparent softness in some of the recent
data is a game changer when it comes to tightening policy. He was one of the two
MPC members who voted against leaving Bank Rate on hold at 0.5% in March,
instead backing a 25 basis point hike. He told Reuters that there had been no
data or Brexit related events to make him think his March rate call was wrong.
2) While policymakers are never certain about future policy decisions
absent a severe shock McCafferty is nailed-on to back a 25 basis point hike at
May's MPC meeting. "We shouldn't dally when it comes to tightening policy
modestly," he said.
3) Rather than arguing that the May inflation forecast may have to be
lowered, as some analysts assumed, McCafferty instead cited upside risks to the
February forecast. McCafferty's core argument for tightening centre on the
labour market, as he believes that there is likely no slack left and employers
are having to raise wages to entice new employees, pushing up on pay growth.
With some upward effects from sterling weakness still to filter through
McCafferty said that there were modest upside risks to the MPC's inflation
projections. The February one already showed inflation holding above target
throughout the three year forecast horizon.
4) On the question of whether the MPC would improve policy communication by
publishing members' individual or collective rate projections McCafferty is a
traditionalist. The MPC issues projections based on unchanged policy and
implied market rates and McCafferty reheated the view that if they switched to
publishing rate projections that could mislead people who would view them as
certainties, rather than conditional forecasts. "My worry ... has been that when
we make a forecast it is taken as absolute certainty, gospel truth," he said.
5) There has been no commentary from MPC members since the March meeting to
undermine the view that a May hike is on the cards, and McCafferty's comments
just reinforce this belief. Chief Economist Andy Haldane and Deputy Governor Ben
Broadbent both have speeches scheduled for this week. If anyone does want to
disturb the assumption that a hike is coming next month they are going to have
to come out pretty soon and say something.
--MNI London Bureau; tel: +44 203-586-2223; email: email@example.com