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Free AccessMNI POLICY: Ex-MPC's Posen Says BOE Credibility Saved Sterling
-Posen Tells Lawmakers Sterling Less A Risk Than He Thought
By David Robinson
LONDON (MNI) - Former Bank of England Monetary Policy Committee member Adam
Posen told lawmakers that he had feared investors would avoid sterling assets
under pressure from Brexit and other uncertainties, but the Bank of England's
credibility has been key in supporting the currency and keeping investors on
board.
Posen endorsed the MPC's reluctance to set a negative policy rate and he
said that if the MPC could do what it wanted with quantitative easing it should
continue to do so.
The following are points from testimony by Posen and others, including
National Institute of Economic and Social Research head Jagjit Chadha, to the
TSC Friday:
-Posen, asked if the BOE was doing a good job, said "Yes, I do in all
sincerity" adding that "We are seeing crowding in" from investors with them
buying gilts and other debt alongside the Bank.
-Posen said sterling risks had receded.
"I thought there was a risk that given Brexit and given the uncertainties
around the UK government with regards to the public health front that there
might be more concern over sterling and over pound-denominated assets. That has
not happened and obviously a key part of the reason that that has not happened
is because of the Bank of England's credibility," he said.
Sterling has stabilised on its trade weighted index after falling sharply
in March before the BOE launched QE.
-Posen endorsed the view of BOE Governor Andrew Bailey that taking Bank
Rate, currently at 0.1%, negative might be more trouble than it was worth.
"I see no reason for them to go to negative rates," he said.
"There is a lot of political baggage and a lot of economic uncertainty
going to negative rates and if you feel you can do QE .. it will have much the
same effect."
-Posen, asked what shape he thought the recovery would take, said the
economy might come "back up at maybe less than half the slope than we went
down."
Chadha, however, emphasised uncertainty:
"What you have really go to think in terms of is a large number of possible
scenarios. There is a central case, a reassuring case .. but I don't think you
should plan around that. There are enormous downside risks to that that may mean
we end up in world that the economy doesn't recover as quickly as anyone
expects," he said.
--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com
[TOPICS: M$B$$$,M$E$$$,M$$BE$]
To read the full story
Sign up now for free trial access to this content.
Please enter your details below.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.