MNI: BOE Carney: Equilibr Rate Up; Staying Still Adds Stimulus

--Carney On CNBC Restates MPC Line Rate Hike May Be Appropriate In Coming Mos

By David Robinson

     LONDON (MNI) - Bank of England Governor Mark Carney reasserted the line

agreed by the majority on the Monetary Policy Committee that an interest rate

hike could be appropriate "in coming months."

     In an interview on CNBC Friday, Carney said that equilibrium interest rates

were rising around the world, so staying put on policy would add stimulus. His

comments will reinforce markets central expectation that the MPC will hike Bank

Rate at its November meeting.

     Carney said that since the Brexit referendum in June last year, the MPC has

been "providing a lot of stimulus to the economy ... and we have been willing to

tolerate inflation being over target."

     The MPC trade-off has been to accept higher inflation in order to support

employment and economic activity. 

     Carney said that UK unemployment was now at a 42 year low and "we are

running out of that spare capacity and that tolerance for having inflation over

target."

     He said that the majority on the MPC, and he included himself in that

group, believed "it may be appropriate to make some modest adjustment to

interest rates, to raise interest rates ... in coming months."

     Carney said that the MPC would take policy one step at a time and he noted

the uncertainty over the impact of the Brexit process, which was likely to hit

both demand and supply. 

     He said that the monetary policy response to Brexit was not mechanistic, as

it depends in part on what happens to the exchange rate.

     With the global economy picking up, and around 75% of it growing above

potential "that means the equilibrium interest rate is starting to move up which

means (for policy) ... if you are standing still you are becoming more

stimulative," Carney said.

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

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