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Ending QE Early Would Be Hawkish... Right?

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MNI (London)
Broadbent Says MPC Never Even Mentioned May Hike In Feb Guidance
By David Robinson
     LONDON (MNI) - Dismissing claims to the contrary, Bank of England Deputy
Governor Ben Broadbent said Friday the Monetary Policy Committee (MPC) had not
misled markets in steering them towards a May rate hike.
     The MPC voted seven-to-two for unchanged policy Thursday with Broadbent
voting with the majority. He told BBC Radio 4 Friday that for him the decision
to leave policy on hold and to wait-and-see what happened, with activity data
running soft and inflation coming in weaker than expected, was
     Markets largely priced in a May hike after the MPC's February minutes,
which stated that if the economy evolved as expected "monetary policy would need
to be tightened somewhat earlier and by a somewhat greater degree" than
previously anticipated.
     The likelihood of a May hike was then priced out ahead of this week's
meeting due to a combination of dovish remarks by Bank Governor Mark Carney and
the softer data. 
     "We never gave a view about when the interest rate rise was coming,"
Broadbent said, stressing that the guidance was conditional on the economy
performing as expected.
     "We didn't even mention May," he added. 
     Broadbent said that the MPC never gave precise indications of when interest
rates were going to go up and that policy was always data contingent. 
     "What we saw in the early part of this year were two things: one, some weak
economic data (and) we think that is probably temporary, we think it is most due
to snow or there is a degree of mis-measurement and then we also saw lower than
expected inflation," he said.
     "It is entirely the sensible thing to do to wait, to see whether we are
right that the economy will bounce back a bit from here and for me the decision
was straightforward," Broadbent said.
     Carney added to uncertainty over the timing of the next rate hike in a BBC
interview Thursday. 
     "It's likely over the course of the next year rates will go up, likely by
the end of the year ... that's the most likely thing to happen," Carney said,
generating confusion about whether he was referring to the next 12 months or the
calendar year.
     Carney too stressed that the timing of the rate hike was contingent on how
the data unfold.
     "If the economy slows... then we will adjust policy," he said.
     The Bank's May Inflation Report projections were conditioned on Bank Rate
rising to 0.7% from the current 0.5% in the third quarter of this year, with
inflation returning to its target - a projection that was compatible with an
August hike but that left scope for a later move with the softer inflation
--MNI London Bureau; tel: +44 203-586-2223; email:
[TOPICS: M$B$$$,M$E$$$,MT$$$$,M$$BE$]
MNI London Bureau | +44 203-865-3812 |
MNI London Bureau | +44 203-865-3812 |
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