LONDON (MNI) – Uncertainty over what the effects of quantitative
easing are argues for erring on the side of caution in choosing how
much QE to do, Bank of England Monetary Policy Committee member Ben
Broadbent said.

Broadbent, the newest recruit to the MPC, said that there were two
opposing effects to consider in deciding how much QE to do. If the first
wave of QE was less effective than hoped, then this argues for more next
time, but continuing uncertainty over its impact weighs in favour of
doing less.

Asked about the scale of QE Broadbent said “There are two slightly
different elements to it. If you knew exactly what it was going to do
and you knew that it wasn’t going to do much then you would have to do
more of it.”

“If there is any degree of uncertainty about precisely what that
effect is, that would tend to act in the opposite direction,” he added.

“You can imagine taking that argument about ‘the less effect it has
the more you should do’ to an absurd limit, where if it does nothing you
should do infinite amounts of it,” Broadbent said.

“So I think there is a trade-off here between the scale of its
impact and also how sure you are of that impact.”

Broadbent was also questioned about weekend reports about a huge
increase in the scale of eurozone support for troubled member states,
with the EFSF rumoured to be increased to E2 trillion.

“Numbers like that would clearly raise the chances of success,”
Broadbent said, adding “Obviously, the (view) in the market is that more
needs to be done.”

In an earlier speech at Thomson Reuters Headquarters here,
Broadbent said the most important thing for policy today is that the
international environment is “clearly disinflationary”.

Broadbent also said that the effects of the sovereign debt crisis
and other international woes are set to dominate any further
inflationary effects from sterling’s fall. While overseas developments
are key to the UK inflation outlook, Broadbent said it was wrong to
argue domestic monetary policy had no role to play.

He rejected the charge the MPC had engaged in “currency wars” by
deliberately devaluing sterling. He said the currency’s fall was not
primarily due to monetary policy but due to the rebalancing of the
supply side of the economy – that the cause of the pound’s decline were
primarily real, not monetary.

The MPC member did not make any explicit mention of the hot topic
in domestic monetary policy at present, quantitative easing. His
comments, however, show that he believes concerns over inflation
expectations and the risk of inflationary effects from a further
sterling fall are overblown, and it implies these are not reasons to
oppose further easing.

–London newsroom 4420 7862 7491; e-mail:
wwilkes@marketnews.com/drobinson@marketnews.com

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