MNI Five Things: BOE Vlieghe Supports Of Rate Path Publication

--Five Things We Learnt From BOE Vliege at House of Commons TSC

By David Robinson

     LONDON (MNI) - Bank of England Monetary Policy Committee (MPC) Gertjan

Vlieghe gave evidence to the Treasury Select Committee Tuesday.

     Here are five things we learned:

     -Vlieghe believes that the MPC should publish its own expected path for

Bank Rate. The orthodoxy at the top of the Bank has been against this. Vlieghe

said that he had raised it internally but that there had been no show of hands

on it and he acknowledged some of his colleagues are opposed to it. "On balance,

I favour moving in the direction of being more explicit about the policy path

that is expected to return inflation sustainably to target. The advantages

outweigh the risks, in my judgement. I think such a change would represent a

further, modest, evolutionary improvement in communications," Vlieghe said in

his questionnaire.

     -On the monetary policy stance and outlook for growth and inflation Vlieghe

is in line with the majority. He said that he supported the central projection

in the May Inflation Report, for subdued growth and gentle return of inflation

back down to target. Asked why he had not supported a rate hike in May he said

that there was "a very low cost" to delaying a hike in order to see how the

economy unfolded.

     -The upper part Vlieghe's forecast range for Bank Rate is well above

current central market expectations. "My own central projection projection will

require one or two quarter point rate increases per year over the three-year

forecast period. That path would bring us closer to the neutral policy rate,"

Vlieghe said. At the upper limit that would take Bank Rate up to 2.0%, whereas

money markets have tended to show Bank Rate heading up only to around 1.25%

three years out. "My central forecast for policy rates is slightly above the

conditioning path of rates derived from market yields in the May Inflation

Report forecast, which assumes just under three quarter point rate increases

over the three-year forecast period," Vlieghe said.

     -Vlieghe acknowledged the uncertainties around the outlook for consumer

spending but said that he agreed with the MPC's central estimated of 1% growth a

year.

     -Vlieghe did not restate the MPC's guidance that asset purchases will only

be unwind when Bank Rate is around 2%, instead saying it would start when they

were at a level from which they could be moved in either direction. This part of

the MPC guidance is up for revision, with BOE Governor Mark Carney saying that

they will revisit it.

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

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