LONDON (MNI) – The following is the second part of the transcript
of the question and answer session Bank of England Monetary Policy
Committee member Martin Weale gave at Cass Business School on February
29.

The questions are paraphrased, and questions with no relation to
policy or the economic outlook have been removed.

Q: How do you see the effects of food price inflation and how do
you react to a UN (UNCTAD) report saying western government cost cutting
is doomed to fail ?

“In some sense, what I alluded to about the age effects, was saying
that change in the distribution of income might have had more of an
effect on consumption than you would think if you just looked at what
had been happening to aggregate income.”

“Now, that of course isn’t the only way in which you can unpick the
income data – the only way in which you can look at different types of
individuals and households.”

“It may be that the incomes of high earners have held up better
than those of low earners at any given age and if the high earners tend
to save rather more of their income than do the low earners that would
be an additional reason for weakness in consumption.”

“So there may well be something there. I wouldn’t want to rule it
out.”

“The point you raised about UNCTAD – one often hears rather strong
opinions expressed about many types of economic policy and, I must say,
on an issue like that I wouldn’t see how UNCTAD could be as definite as
you have described them as being. One can think of all sorts of
unknowns, all sorts of unknown policy responses … think of ways in
which people could take a gamble and turn out to be lucky or you can do
something that looks reasonably risk free and turns out to be unlucky.”

“The point is the future is uncertain and policymakers, including
the Monetary Policy Committee, have to adapt as they see the economic
situation developing.”

Q: Did you say you (the MPC) may raise rates before you engage in
quantitative tightening, or QE unwind ?

“I must say I could see that as a possibility.”

“If you think back to this time last year, then OK there were asset
holdings outstanding that weren’t as large as they are now, but at that
stage, the euro area crisis hadn’t happened, at that stage I was
actually voting for an increase in interest rates because I was
concerned about inflationary pressure and for those of us who were
concerned it seemed more sensible to think of an increase in interest
rates than it did of trying to set in motion unwinding some of the asset
holdings.”

“Now, whether if the situation I describe actually does develop and
that is the way the committee will still see things I don’t know but I
must say I can see that doing it that way round you probably do have
rather more flexibility.”

Q: Has the BOE ever considered doing monetary policy solely through
QE and not using interest rates ?

“First question, have we considered abandoning interest rate
setting and doing it all through asset purchases ? Well, I think the
short answer is no, we haven’t considered it. I must say I can’t see why
I should want to do it, in some sense continuing the answer I gave to
the previous question – the interest rate is a nice, flexible
instrument.”

“The reason we have been making asset purchases recently is because
the interest rate was so low that it couldn’t practically be reduced
further but, speaking for myself, I certainly see that as a situation
that is a consequence of the very unusual economic circumstances that we
have and not a normal way in which one might think of running economic
policy.”

–London newsroom 0044 20 7862 7491; email:drobinson@marketnews.com

[TOPICS: M$$BE$]