MNI 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$]