MNI BRIEF: Policy Choice Was 25 or 50 bps Hike - MPC Saunders

Bank of England Monetary Policy Committee member Michael Saunders, who voted for a 50 basis point hike in May, said that he had not thought about hiking policy rate by more, with the choice for him between a 25 and a 50 bps increase.

In a question and answer session at the Resolution Foundation he said that his decision to hike by 50 bps having only favoured a 25 bps hike in March was, in part, because the tightening in financial conditions that he had feared had not materialized. He also clarified his views on raising the policy rate, currently at 1%, swiftly towards neutral.

He said that on the current market rate path, for Bank Rate to rise further to 1.25% and on up to 2.5%, the market still does not expect inflation to drop below the 2% target and he assumed that the neutral rate was somewhere in that 1.25 to 2.5% range. As the precise rate is fuzzy Saunders acknowledged that the neutral rate is less useful as a policy guide once the policy rate was within or near to the range, but he said that when policy rate was below 1% it was clearly accommodative.