MNI: BOE MPC Tenreyro Backs View Hike Likely In Coming Months

-BOE Deputy Governor David Ramsden Was In Minority Opposing View In Coming Mos

By David Robinson

     LONDON (MNI) - The two newcomers to the Monetary Policy Committee, David

Ramsden and Silvana Tenreyro, split over the MPC's line in September that a hike

was likely to be appropriate in coming months.

     Deputy Governor David Ramsden told the Treasury Select Committee Tuesday

that he was not in the majority, as he believed that there was still slack in

the economy and no evidence of second round effects on wages from the fall in

sterling. Tenreyro said that there was a negative output gap and evidence from

firms suggested that wage growth would pick-up with recruitment difficulties

intensifying.

     Tenreyro said that she had supported the MPC's line in August that the

markets were likely under-pricing the total amount of tightening required and

that she then backed the September view that the first hike could be in coming

months.

     She said that her vote at the November meeting would be determined by how

the data emerged between now and then.

     Asked about unwinding quantitative easing Tenreyro said that it seemed

sensible to use Bank Rate as the active policy instrument and her instinct was

to do any unwinding very gradually, as QE was a new experiment and the effects

were uncertain.

     Tenreyro said that the MPC's best collective judgement was "for earnings

growth to pick-up as output grew faster than potential."

     She said that firms had recognized they would need to raise wages to try

and recruit and retain the staff they needed. Ramsden, however, said that he had

seen no evidence of the fall in sterling feeding through to higher wages.

     Tenreyro expressed support for the belief that the equilibrium interest

rate was lower than it previously was, adding that what mattered was what had

driven it down.

     Asked to put a figure on it she said her best guess was that the real

equilibrium interest rate was about 1%.

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

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