MNI BRIEF: BOE Broadbent: Less Need For Rate Hikes If QT Bites

Quantitative tightening can, in one sense, be a substitute for rate hikes because if it tightens financial conditions the actual policy rate will need to rise by less, Bank of England Deputy Governor Ben Broadbent said Thursday.

In comments at a BOE panel session on unwinding QE, Broadbent said that policymakers did not want the effects of balance sheet shrinkage to be very large, in part "because they are probably less predictable" than the effects of rate hikes.

If, however, QT "tightened financial conditions more than was warranted given what else was going on in the economy .. that would simply mean that Bank Rate would be lower than it otherwise would have been." The BOE, with Bank Rate having hit the MPC's first threshold of 0.5%, has begun natural run-off of its asset purchases, by not reinvesting maturing gilts, and once Bank Rate hits 1.0% it can begin active sales of gilts, with uncertainty over what this will do to yield curves.